The Indian airline space has attracted a lot of attention over the last six months. First it was the debate over how to rescue Air India. The airline was teetering on the edge following years of mismanagement, a bloated cost structure and botched merger. Now it is Kingfisher Airline's turn to face the heat.
A slew of ill-managed cancellations and losses since inception six years ago have raised the question: Are several Indian airlines such poor performers by virtue of bad regulation or inept operations? A quick history lesson illustrates that it takes intense discipline, favourable regulation and friendly governments for sustained success in this business.
Running airlines is a challenging business. You've got a massive and volatile fuel bill to manage.
A large fleet of maintenance-intensive aircraft, staff with high-skill level don't come cheap and a chock full of expenses include handling baggage, landing, take-off and docking. For every airline which has pulled off sustained success such as Southwest Airlines, Singapore Airlines or Ryan Air, there is a casket full of companies such as Delta Airlines, Continental Airlines, JAL, KLM which have been in and out of bankruptcy courts in an effort to stay afloat. It is little wonder that Warren Buffett (who had a near capital-death experience with US Air in the 1990's) once remarked: ‘The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers.
20/11/11 Adarsh Gopalakrishnan/Business Line
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