A leader of industry has recently said that in a market economy private players should not get any bailout in case they are in trouble. The airline industry is in trouble, indeed. Air India is continuously making huge losses, Kingfisher is almost at the verge of collapse, Jet has made huge losses, and Spice Jet, too.

There is something wrong if an entire critical industry is in such deep trouble. This requires a policy response for industry, not mere rhetoric about capitalism and too from people, who in the not-so-distant past, asked for protection for Indian industry, and rightly too.

FOREIGN AIRLINES PRIVILEGED

The root of the current crisis lies in bad policy of the government. Our airlines are not allowed to fly overseas unless they have five years of operations.

Overseas airlines are freely allowed, within bilaterals, to fly to India. This shuts out lucrative routes for our airlines and allows overseas airlines to charge outrageous prices to Indian consumers.

Bangalore is a classic example where overseas airlines are creaming the market. Our airlines compete in the domestic sector, which is extremely price-competitive without revenues from overseas sectors where they could earn more in their formative years. They are at a disadvantage.

Our fuel cost is around 60 per cent of operational cost, an absurdly high percentage because of monopolistic conditions in the market place.

The oil companies mercilessly jack up oil prices, charge much higher than international prices, collude together in pricing and suck the resources out of the airlines. The Competition Commission of India should suo motu conduct an enquiry into such predatory practices.

This is compounded by very high taxes on airline fuel, levied by both the Centre and States. Each time prices are raised, both the Centre and the State earn more taxes, out of the misery of the industry. A case of exploitative suppliers and an insensitive government.

THE AIR INDIA FACTOR

But the biggest factor is the existence of a player who does not believe in rational pricing — Air India. This airline is pricing below cost, to get market share and making huge losses. It is asking for a massive bailout from the government, using taxpayers' money.

It is driving the private sector out of business, secure in the knowledge that it is a public sector undertaking and the government will bail it out using taxpayers' money.

And worst of all, our government, our political leaders and industry leaders, believe this is alright and good policy — but helping the industry as a whole through policy is an unnecessary bailout.

This is absurd and distorts market pricing. No industry can compete and survive where one player makes huge losses, believes in predatory pricing and is bailed out continuously by the government. This is the key issue behind this crisis.

If our industry leaders believe in the market economy they should ask for Air India to be allowed to shut down, not criticise private airlines' request for a bailout from bad policy.

FUEL PRICING

Our private airlines deserve a bailout. They are not failing because of mismanagement.

Unfortunately, the debate is getting sidetracked because of the extravagant lifestyle of the owner of one airline. What needs to be done? First, we need competitive conditions in airline fuel pricing. The airline industry cannot subsidise losses made by the oil companies on diesel and kerosene pricing.

The high margins on sales need to reduce and the monopoly broken in the public interest. The pricing has to be based on international prices without huge margins.

The taxes levied by the Centre and the States need to be reduced to a reasonable level, and fixed on a base prices and not increased each time international prices go up.

Lastly, Air India cannot be subsidised by taxpayers and the private airlines asked to compete against the government with its vast resources. This is no competition at all, but hara kiri . If private airlines are to be allowed to fail, Air India should first be shut down.

Let us remember that private airlines make up 80 per cent of India's capacity. Should 80 per cent suffer for the fallacy of 20 per cent? And if they shut down because of losses, what happens to the consumer, what happens to our economy if a very critical part of our infrastructure shut down due to bad policy?

Helping the industry is not a bailout, but remedying bad policy — they need urgent help.

Related Topics
comment COMMENT NOW