The Hindu Business Line : High flying dreams for ‘aam aadmi’?

Story so far: As discussed in this column a fortnight ago, a concerted effort t— from both policy makers and corporates — is needed to solve the healthcare problem faced by our people today. We have sympathy fo r cancer patients. But, does the Government know how many patients are suffering from lung cancer? Have existing treatments been effective? Questions such as these will remain. Much like healthcare, travelling is our basic need. This week we focus on aviation.

Episode 179

A week after the new Hyderabad airport was formally inaugurated; the airport developers received the approval from the Civil Aviation Ministry to commence operations on March 23. Earlier, the planned commercial launch was deferred in the last minute. Objections were reportedly raised by low-cost carriers (LCCs) over the higher ground handling charges at the new airport and the poor road connectivity between Shamshabad and the city. The delay in opening of the new Bangalore and Hyderabad airports accentuates the call for clarity in terms of policy-making.

These recent events unfolded in a quick fashion. Unaware of all these, I happened to board a flight from Kolkata to Chennai — via Hyderabad and Bangalore — I was really frustrated at the Hyderabad airport. Though such delays in these connecting flights were almost inevitable, the low airfare of Rs 2,525 was a carrot to make the people undergo the ordeal. However, my agony was less compared with my fellow traveller, who was a French.

A regular flyer in Air France-KLM, he was disappointed by services, airport…just about everything. He was fussy about the water served inside the flight, ‘cramp-inducing’ leg space and the ‘unhygienic’ bathrooms at the airport. “Your airports are not up to global standards!" he blurted, when he overheard other people talking about the developments in the airports. Perceptions do matter and also differ. When an 40-year-old man said, “We are fast catching up,” the Frenchman shot back saying c’est pas grave (it doesn’t matter, it’s not a big deal). With over Rs 10,000 crore investments going in this sector in 2008-09, it’s in fact a BIG DEAL!

Lost in losses

Air Deccan’s phenomenal growth encouraged the other low-cost carriers to jump into the fray. After the entry of SpiceJet, Indigo and GoAir, the mainstream airlines such as Indian Airlines, Jet Airways, Kingfisher Airlines, and JetLite (former Air Sahara) were forced to lower their fares. Together, LCCs, along with full-service airlines, are set to to carry over 11-crore passengers. “Making every Indian fly sounds more of an orchestrated corporate mission. From simple economy-, business-, and first-class fares to an entire range of multiple slab tariffs, including apex fares, Internet auctions, special discounts, bulk purchases, and last day fares...its all a game of money making,” said Madan Lal, my neighbour. His comments were disappointing. But, a few days ago, I read a news report saying that the airlines were poised to report losses to the tune of Rs 2,900 crore for the year 2007-08. So where is the money? Is there still some money to be made with these low passenger fares?

Aviation expert Naresh Rane believes that the aviation sector, like all the other consumption-led sectors, is set to boom. He said, “The growth in the domestic air traffic is one of the fastest in the world. With the entry of many players, intense competition and continued pressure on margins are almost certain. However, over the next 2 years, profitability should improve as the period of excessive competition is now followed by consolidation. We are standing at a critical juncture.” May be Mr Rane has a point.

Keeping fares low

Ernst & Young estimates that the revenue per available seat kilometres (ASKM) went up from Rs 3/seat-km in FY02 to Rs 3.4/seat-km in FY06. “The revenues are primarily driven by passenger operations, which account for approximately 80 per cent of revenues, while the remaining 20 per cent are accounted by non-passenger operations (with air freight services constituting 11 per cent). The share of passenger services increased from Rs 2.4/seat-km to Rs 2.7/seat-km during FY02–06,” the report titled Indian Aviation Sector-Competition-Consolidation-Efficiency notes. Unlike Railways, where passenger fares are often untouched, for airlines passengers’ add to their kitty.

Thanks to the price-sensitive air passengers, low-cost carriers in India enjoyed around 44 per cent market share in 2007. They are buying new planes and looking to fly outside the country, where the return on money invested is higher. So how does the common Indian gain from low cost airlines flying abroad? — at the moment, only Air India and Jet Airways are allowed to flying international routes, while Air Deccan would soon be eligible, starting August.

Accountant Sri Kumaran views Indian airliners flying abroad as an indirect way of enabling the Aam aadmi fly. “With large gestation period, even larger amounts money required for everything starting to airplanes, staff costs and now the pinching ATF fuel price, the Government will be forced to relax the current (international flying) norms. With every seat they sell outside, at least three seats will be ensured for us!” Dreams??? Who knows, all strange men were denounced in their contemporary times, only to be recognised as geniuses by later generations. Even if the Indian government takes Mr Kumaran’s advice as it looks at relaxing the guidelines, and considering grant of international access — airports have to be taken more seriously. As per my Googled knowledge, the top five airports handle approximately 70-80 per cent of passenger traffic.

Airports and space

Aviation sector suffers from a severe capacity constraint of a different kind. “Did you know that shortage of parking bays gets in the way of the ability of the airlines to originate flights from airports during peak periods?” airport ground official Ramesh Mathur informed. Like car parking in metros, aeroplanes too suffer from the same problem. According to E&Y, increased holding time in the air translates into an additional fuel cost of Rs 1,25,000 per flight (1/3rd of my salary earned per year) for each additional 60 minutes spent by an aircraft in the air.

All these point to requirements of more airports. The Ministry of Civil Aviation has accelerated modernisation and upgradation of airports across the country with a planned budget allocation of over Rs 50,000 crore in the Eleventh-Plan Period. The recent fracas over airports will be fresh in our memories. Some point out that the Ministry is focusing too much on private participation in the aviation infrastructure; especially airports.

“The special consideration agreement signed between the Government and (airport) developers has various levies. This means existing airports in these cities would cease commercial operations, once the new ones get off the ground,” former airport employee Sudha Chandran says. Furthering her argument, Mrs Chandran, who served a good part of her life in managing airport operations in New Delhi, said these new airports would start operating at full capacity almost from the start.

Follow recommendations

“Something like this was unthinkable two decades ago. A bit of competition is never bad. Passenger levies and airport charges might have got a better deal. Additionally, think about the hundreds of jobs that would be under the guillotine, if existing airports were to be closed. In the long term, they may not turn out to be a good thing,” she averred. The subject of airport charges is controversial around the world over because of the cartel-like nature of the big business of running airports. May be what is needed is an sovereign airport regulator that can come to a decision on pricing of airport services and also lend a hand in better planning needed to develop airport infrastructure. Being control freaks, we need regulators for everything.

So, if we have aeroplanes, airports and personnel to run flights, we are ready for better times, right? “You are forgetting route dispersal guidelines. These sometimes hold back profitability. As per existing route dispersal rules, a scheduled airliner operating on Category-I routes (profitable) is obliged to arrange at least 10 per cent and 50 per cent of available seat kilometres in Category-I routes to Category-II and Category-III routes (not that profitable) respectively,” Dr Bala Swaminathan, economics professor with keen interest in airlines business.

Why are these rules still in place? In fact, the Naresh Chandra Committee in its 2004 report had recommended complete removal of route dispersal guidelines. Apart from stock markets, reforms in India happen rather slowly. The latest meeting of Group of Ministers to discuss the new aviation policy ended inconclusively in January this year. “Election politics is in vogue now. Who cares about the air-tickets getting cheaper or liquor baron-owned airline company bleeding financially due to poor policies? No big deal!” my co-worker Shanthi said, when she saw me jotting down notes about this topic. May be the Frenchman was right after all. Fait accompli.

Be Mr Praful Patel for a day. What changes would you like the aviation sector to have? Mail answers mentioning names along with addresses to swatilistening@gmail.com.

Responses to Episode-178 on the issue: ‘Can we solve the healthcare problem?’ (Business Line, March 10, 2008).

I went through your article ‘Can we solve the healthcare problem?’ We are in the process of developing a global health portal, to be launched from Bangalore and spread its usage to the entire nation. There will be a cost for subscription to the health portal to record and store all medical data. The portal will have doctors and medical care providers to log in with super access, ensuring a clear and transparent record of diagnosis and treatment enabling lesser mistreatment. Let the people themselves pay for the privilege of tracking and maintaining their health.

P. Reddy, Bangalore

We Indians are good at talking, possibly planning, but certainly bad when it comes to following-up and execution. How much of money would have been spent by the Central and State Governments over the past six decades for the so-called ‘health care systems’. An integrated and holistic view is what is required. There is no use in playing to the gallery. Let the job be given to the administrators, medical fraternity and policy planners.

S. Krithivasan, Mumbai

Only social auditors to administer the entire healthcare spend of the State. The Government should concentrate and enforce medical inclusion (like financial/communication inclusion) at micro level. A good percentage of the medical insurance premiums to be made compulsory spent on medicare for citizens below the poverty line.

S. Krishnamoorthy, Mangalore

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