Back-to-back power outages are just the latest indication that lots of things in India need to be fixed if the nation is to ever achieve its highly-touted potential. Certainly for those of us who have been watching the aviation sector in India, this meltdown came as no surprise.
In the past half decade, India’s aviation market has seemed at times like a Wild West show, with bravado often replacing good business sense. As the market liberalized, both new and established operators practically trampled each other as they rushed to the aircraft order table.
None of this was essentially bad; India’s economic growth rate and seemingly bottomless pit of potential customers did indeed present a powerful incentive. Unfortunately, too many takers reacted at the same time, creating a glut of capacity that even a rapidly growing nation was unable to absorb.
More than just aircraft
However, more importantly, these operators overlooked the reality that a vibrant aviation sector consists of more than just airplanes. It requires an infrastructure able to cope with rapid growth and a regulatory structure that encourages and provides a level playing field.
While the nation has actually done a good job of building or rebuilding some of its airports, many remain in dire need of new facilities and, in the case of Delhi’s upgraded airport, stunning increases in fees and charges have shocked all the airlines that serve the airport. The “if we build it, they will come” mantra should have been “when we build it, can they afford it?” The charges, estimated to be an increase of over 300 percent in just 2 years, have drawn condemnation not only from individual airlines, but also from IATA, the global representative of airline concerns.
Is the fox in charge of the chicken house?
However, the true elephant in the room is the Indian government, which acts as both regulator and primary investor in Air India. The government has spent or promised billions in aid to an airline that is universally seen as a testimony to poor management and service. Repeated attempts at reform have almost always made things worse and in a recent article by the Centre for Asia Pacific Aviation, the author suggested that there simply might not ever be enough money to keep the airline afloat.
That, however, has not stopped the government from trying. And as the government giveth, so it also taketh. The fuel taxes that are applied in India make this vital operational component even more expensive for its carriers – though the “aid” for Air India effectively puts most of the tax burden on its competitors. Furthermore, regulations that put restraints on international service (somewhat relaxed of late) and ownership limitations constrain new entrants and again indirectly disadvantage Air India’s rivals.
All of this manipulation has created an industry where profits, much less break-even operations, are but chimeras, making a stable marketplace with sound economics an impossible goal.
The resulting chaos has also spawned a number of market responses that have led to unintended consequences, and many of these will continue to be troublesome to Indian carriers even if the government enacts much-needed reforms.
First, the weakness of India’s carriers plus the unfettered access granted to the Gulf carriers has effectively moved India’s “hubs” to Dubai, Abu Dhabi, and Doha. Passengers from destinations across the globe can access almost all of India’s primary cities with a single stop in the Gulf. Los Angeles has double daily service to Dubai with smooth connections to 10 cities in India. Is it any wonder that Air India discontinued its thrice-weekly LA flights via Frankfurt? And that is a tale that can be applied to points as diverse as Durban, Sao Paulo, and Manchester.
While it is unclear as to whether or not there could have been another future for India’s long-haul carriers, the government’s policies and mishandling has certainly made it unlikely that India’s airlines will be able to reverse the process.
And then there are alliances. The true long-term value of these global partnerships may be up for debate, but there can be little doubt that passengers appreciate the benefits that an airline’s alliance membership brings. But the favoritism lavished on Air India, which ultimately proved unable to make the grade and be accepted by Star Alliance, also undermined Kingfisher and made it an unsuitable partner for oneworld. Jet Airways is now apparently looking for a berth in Star Alliance, but there has of yet been no indication that Jet will be allowed to go to the party when Air India was told to stay home.
Slow recognition, slower response
At present, there is little to celebrate in the Indian aviation sector. At least two of its three intercontinental carriers are insolvent, and the third is in the red and held hostage to the attempts to make Air India at least seem viable. Spice Jet and Indigo both appear to be holding their own with domestic networks and limited international service in the region. Neither has expressed any interest in intercontinental service.
There are constant discussions that hint at regulatory reform, but none of those is likely to enable the present major players to regroup – especially Air India and Kingfisher. Even if foreign ownership restrictions were to be lifted, it is difficult to envision anyone foolhardy enough to actually enter the game at this point. A reduction of fuel taxes has also been rumored – though as yet no action has been taken.
And now that the lights have been turned back on, the national focus will doubtless shift to beefing up the power grid, probably leaving aviation reform in the continuing dark.