I was outraged to hear our Civil Aviation minister proclaim that Govt.will not allow Pvt.Airlines to price below cost. Apparently the ministers decision is the result of mounting losses Pvt.carriers are bearing these days, mainly due to the oil prices having moved northwards and intense competition between the carriers themselves, allowing them little flexibility to increase prices in tandem.If Patel is so concerned that airlines might fold up due to heavy losses,he needs to understand that if private entities are making losses, due to certain market factors, he need not poke his nose into whats essentially an outcome of market forces. Did pvt.carriers not know that competition would be intense and that the airline business is, by its very nature, a low margin business, when they entered the fray? They did. But this hasn’t stopped some very big business houses to start an airline, even till very recently.
The problem with our Govt's decisions is that many a decision is taken without considering the benefit to the consumers and tax payers. Govt’s care about taxes, pvt. sector workers, Govt. employees jobs, industrialists...everyone, but CONSUMERS, while making key decisions!
We CONSUMERS don't care if an airline or two folds up! The free market system should logically punish airline owners who have not done their homework before start up,anyway. Same as it ought to reward those airlines who are efficient and customer friendly. We don’t care if Indian airlines folds up either. It is bad on both the counts listed above and the sooner it folds up the better for all concerned. It's sucking too much of our tax monies and delivering shitty service with its staff of unionized jack asses (even the minister recently admitted that he was displeased with the public carriers performance). To make matters worse, a leading news channel recently exposed IA’s poor safety record.
The ministers mis-directed enthusiasm has sent the wrong signals to airline companies, who have actually gone ahead and met to discuss, under the auspices of a newly formed body called ‘Federation of Indian Airlines’, what they termed as “revenue management” which is corporate speak for cartelization and price manipulation. What’s worse is that Indian Airlines participated in this meeting, making us wonder if the Govt. has given its blessings to this forum!This is dangerous territory and certainly has no place in a free market system. In India, we have the Competition commission, which is designed to bear down on cartels and monopolies. According to the Competition Act, a cartel would attract a penalty of 10% of the turnover of the cartel or three times the profits out of that cartel, whichever is higher. According to news reports the commission has already asked for clarifications from the Civil Aviation ministry, as to what transpired in these meetings. What it needs to do is summon the airlines and serve them notices, assuming it has judicial powers. If it doesn’t have these powers, I am afraid it would turn out to be another paper tiger in the ministerial labyrinths of North Block.
The minister has also spoken about “careful examination “ of future plans of existing ad new entities to add to airline capacity. It is a known fact that the Govt. has failed miserably in terms of providing infrastructural ground support facilities and better airports which would allow airlines to expand and this has increased the cost of these ground facilities to levels that are far higher than what they should be. For example, in most countries abroad, there are two-three airports in a major metro and the low cost airlines usually operate out of the ones operating outside the cities, since the cost of infrastructure in such airports is low. In India, however, the low cost carriers share the same space with high cost carriers and the same cost, significantly damaging their leverage over costs. Considering that the cost of crude is the same for both classes of airlines, this means that the low cost carriers are effectively robbed of their ability to control costs, except managing other not so critical cost components like catering, salary costs, admin costs etc.
Cartelization and Price manipulation is something that’s been tried out the world over, already for the shipping sector, with little to show off for itself. It is probably the only industry , worldwide(at least the only one that I know of) which has Govt. sanction to form cartels and discuss and bear down pre-decided prices on the trade for many decades now. Govts. the world over saw this as a remedy for the industry’s problem of being extremely fragmented ( a scenario that’s now changing at a slow pace via mergers and acquisitions) and low margins. But it is a fact that cartelization has hardly dented these woes of the shipping industry. It still remains very much a cylical industry, is still very fragmented and low margin. Given this long experience, one wonders, what weight of evidence the minister has used to adjudge that the medicine to end the woes of the airline industry lies in sanctioning price cartels. There is, in fact,now an increasing realization, especially in the United States, that sanctioning price manipulation has only served to keep the shipping industry more fragmented and ending it would likely lead to greater consolidation and more stability for the sector.
This is a decade when millions of Indians have flown for the first time, thanks largely to the competition brought about by bringing in new players and challenging decade old monopolies. One still remembers the days, when one had no option but to fly IA and be happy with whatever they dished out. Thanks to some enlightened policies, this scenario has undergone a sea change. One only hopes that this achievement is not shadowed by the Govt’s new zeal to protect inefficient private commercial interests and public monoliths.
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on Friday, October 27, 2006 at 4:01 PM.
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