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The equation for the airline business in India is very simple: very high costs plus very low revenue equals very large losses. This trend has been going on for a long time, with rare exceptions.
Oil prices and high international prices compounded by high taxation, especially sales tax, have led to higher costs. Other costs, including airport charges, have not lagged far behind. Revenues have been brought down in the struggle for market share by fiercely competing airlines.
The Government can choose to leave the airlines to their fate or to foreign capital, as with Jet Airways and Etihad. Or it can harness them to boost GDP, employment and technological advancement, because the aviation business is a force multiplier.
The new Government’s priority for aviation was clear from the President’s address, which mentioned plans for low-cost airports. If the Finance Minister follows up on this good start by announcing measures to ease the hardships faced by the sector, the industry will be relieved.
Fuel prices can come down if the States are persuaded to lower sales tax on ATF. Import duties on spares need to be lowered and the duration inventory can be kept without payment of duties increased.
High operating costs have splashed red ink all over airline balance sheets. Opening an External Commercial Borrowing window, as was proposed in the last budget, can also provide relief.
Growth areas Passengers and airlines are only part of the aviation story. There is air cargo, which is directly linked to economic growth. Then, there is the Maintenance, Repair and Overhaul business, which can go beyond in-country airlines. Aviation training can cater to growth as well as to the export of manpower. Then there is general aviation, be it charter or air ambulance, and airports and other infrastructure.
The budget can stimulate growth in all these areas. The Government can emulate China here by providing investment as well as an environment to facilitate investment by the private sector.
The Government will also need to take a final call on Air India: link any subsidy to clearly enforceable goals or privatise or better still push partial disinvestment, to begin with.
(The writer is former Chairman and MD, Air India)
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