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.
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.
Our fuel cost is around 60 per cent of operational cost, an absurdly high percentage because of monopolistic conditions in the market place.
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.
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.
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.
14/11/11 TV Mohandas Pai/Business Line
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