‘Indian government should not regulate air fares'

The International Air Transport Association (IATA), the global body for 240 airlines and managing 85 per cent of global air traffic, has advised the Indian Government not to regulate fares. It also feels the current situation is not conducive for domestic carriers to attract foreign capital. Mr Tony Tyler , Director-General and CEO of IATA, recently spoke to a select group of Indian mediapersons, including Business Line .

Excerpts from the interview:

The Government is considering allowing foreign airlines to pick up equity in Indian domestic carriers. How do you view such a move when all Indian carriers, except one, are in the red?

Investing in a loss-making business is obviously not a winning strategy. But certainly, Indian laws are very restrictive on foreign investments in airlines.

If the Government liberalises the FDI policy, you will see foreign money coming into the aviation market, because it is a rapidly growing market. Therefore aviation-friendly policies are required, particularly lifting the dead-weight of taxation.

Have you got any sense from foreign carriers about putting money in Indian carriers?

In today's difficult environment, generally speaking, many airlines are trying to keep their balance sheet strong rather than investing in other airlines. If foreign investment in airlines is allowed, investments from different kinds of sources will arrive.

India is a big market and getting there by air is the best way. We need good air transport infrastructure to facilitate foreign investment.

Do you see the future Indian market only for low-cost carriers or it is a market that can sustain both full-service and low-cost players?

There is huge potential for the low-fare segment and it has very strong and very good prospects. There is also some space for premium fare and cargo (airlines). India is a very big market and has many segments. So there is enough space for all categories.

Airlines all over the world are facing similar problems of high fuel prices; what is so different about India?

Globally, even in the bad days, fuel costs did not account for more than 30 per cent of the total costs for airlines. But in India it (fuel costs as a component of total cost) is 45 per cent.

High fuel prices are the main problem here. It handicaps the whole industry. It pushes costs up and so fares have to be increased to break even. Then you will have less traffic and less revenue. It is a horrible spiral of cost. It is penalising the industry.

Infrastructure is also a problem. There is no doubt, the Government can provide a better operating environment. A big carrier like Air India is highly and heavily subsidised by the Government because of a very high cost structure. Private carriers have to compete with subsidised carriers.

Do you think there is a demand-supply mismatch?

We have seen aggressive expansion by all the carriers across the world, especially by the Middle East carriers, in the Indian market. It creates a very competitive environment.

If the cost of operating is very high, then airlines could still make a profit by pricing in a way to stimulate demand. Demand is flexible depending upon the market. There is (a) trick to be able to operate at low cost.

The Indian Government has been criticised by Government auditors for following a liberal bilateral regime. This is also cited as reason for Air India being in bad shape. How do you analyse this criticism?

You cannot protect your way to success in the world of business. If there seems to be too much competition, the answer is to find a way to be competitive yourself. You cannot protect your national carrier always.

The economics of cost would be huge. India needs to be a part of the globalised world. The answer is to give Air India support for restructuring and reduce the tax burden, which penalises Indian carriers very heavily. If you look around the world, where are the strong carriers? They come from the most liberalised economies.

The Government is proposing a new civil aviation authority which will replace the Directorate General of Civil Aviation (DGCA). This authority seeks to regulate air-fares. How do you see this?

Aviation is an international business, requirements are different. Regulating a competitive market is not good, other countries have done away with this. If you regulate the capacity, then regulate the prices, if you have liberalised the capacity, then do not do so.

> shishir.s@thehindu.co.in

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