By Adirath Sethi
Back in September 2012, I found myself stranded in Srinagar because of protests in the Kashmir Valley. My woes were amplified by the daily news informing me that my Kingfisher Airlines flight home may soon become a mere figment of my imagination. Surely enough, by the time it was time to head home, Kingfisher had shut down, leaving me with no option but to re-book – at a not-so-bargain-price with another airline.
Seven years on, cash-strapped Jet Airways is giving similar sleepless nights to its fliers.
Long before eCommerce companies came along and confused us with the absurd idea that astronomic losses were just “a quirky new business model”, airlines were racking up mountains of unserviceable debt. And each time things have spiralled out of control, they have left in their wake, a sea of irate travellers, whose spouses curse them for not having the foresight to know that the airline would not survive the winter.
The recent woes of Jet Airways have once again put the spotlight on an industry that has always been fraught with risk, both for the airlines themselves and for travellers who book in advance, never expecting their flight might be grounded. This has become such a genuine concern that customers are now filing PILs to limit advance bookings altogether.
So, are Indian fliers unique in this level of uncertainty? Or is this just how airlines operate everywhere?
India is still a young market for aviation, although some of the staff at Air India appear to have worked there since before Independence. The industry was only de-regularised in 1991 by Manmohan Singh’s not-so-accidental reforms. However, barring Jet Airways, none of the early private airlines appear to have made it this far. Airlines like ModiLuft, Damania, and East-West (remember them?) didn’t even make it to the turn of the century. Air Sahara – owned by “inmate voted most likely to return” in the Tihar Jail yearbook, Subrata Roy – eventually sold out to Jet Airways in 2006. Amid all this was the Kingfisher debacle, played to perfection by a man who has a flair for flamboyance and an inexplicable desire to watch copious amounts of money burn before him.
Despite this, the market has continued to attract new entrants – such as Indigo, AirAsia, SpiceJet, and Go – all of whom have struggled to make money with any consistency.
Although it is not uncommon for a nascent market to experience such high levels of churn, the Indian aviation industry is especially difficult to navigate through. For one, airline companies are at the mercy of oil companies that supply them with jet fuel. Expensive jet fuel is driven in part by high taxes (to subsidise LPG and the like, so yes, it’s a little bit political) and low competition among fuel suppliers. This has been made worse by a weak rupee, since India imports its oil. As a result, fuel forms over a third of the costs of Indian carriers, whereas carriers abroad only see it at about a quarter of their costs. In addition to this, the cost of owning or leasing planes, maintenance, and the employment of a skilled staff makes running an airline a frighteningly expensive affair.
So, in some ways, owning an airline is a lot like supporting RCB at the IPL. You may seem to have put together a winning combination, but year after year you face disappointment and loss. Interestingly, Vijay Mallya has owned both an airline and the RCB, so maybe the comparison is more than just coincidental.
Against the backdrop of higher costs, Indian carriers must also combat competition. Here again, India deviates somewhat from more developed markets, where no-frills carriers cater to a different demographic than full-service providers. In India, everyone loves a bargain. The rise of no-frills airlines such as IndiGo, caused the decline of Kingfisher and now Jet, who were trying to offer in-flight meals and the promise of undamaged kneecaps in a market where customers would happily share seats if it meant a bigger discount.
All in all, Indian aviation finds itself in a conundrum. It is the fastest growing aviation market in the world, but the desperation to scale up means that by some estimates, the entire industry is operating at an average price point that is 15 per cent below break-even. From the traveller’s perspective, this is usually a wonderful thing. Remember when Deccan offered flights to Goa for ?300? Sure, you had to wind your body down like a pretzel and allow yourself to be placed in the overhead compartment, but you were in your 20s; your body allowed for such things! (If you’re too young to remember Deccan, just imagine a BEST buswith wooden planks on either side). But the issue arises when the airlines can no longer sustain the low prices and decide – usually overnight – to cease operations and shrug apologetically at customers.
Jet Airways has been saying “Sorry” more than Justin Bieber these days. Like Kingfisher before it, it appears to have built a large pile of unmanageable debt and is now starting to ground planes, as it lacks the funds to fly them. Recent efforts to secure funding, either from Etihad, who own a large stake in Jet, do not appear to have succeeded. Meanwhile, the State Bank of India – who must really love losing money to airlines considering they also over-lent to Kingfisher – are doing all they can to make sure Jet does not collapse into insolvency. They are working around the clock for a bailout plan, which will no doubt involve using more investor funds – effectively money from the same public that would find themselves stranded at airports if Jet suddenly shuts down. At a press conference, Congress chief spokesperson Randeep Surjewala said that the government had asked public sector banks — SBI and the PNB — to waive loans to the tune of ?8,500 crore by taking over the airline’s shares, The Hindu reported. “Why is the Modi government giving a ‘bailout package’ to a bankrupt corporate entity like Jet Airways owned by foreign investors, out of public money, but not to India’s debt-ridden farmers,” he asked.
Meanwhile, the government has assured that they will do what they can to help the airline stay afloat. They have asked SpiceJet to consider taking some of Jet’s aircraft.
At the end, we need to consider whether – with elections looming – the government can afford to let the plug be pulled on an airline with nearly a fifth of the domestic market. Whether it deems the flying class’s votes as important would probably determine their eventual level of intervention. But for now, Jet’s demise would mean a capacity shock in the airline industry and possibly drive ticket prices up in the short term. Jet fliers continue to be hassled with the airline not only grounding flights but also charging a steep fee for those considering cancelling tickets.
For travellers, the timing could not be worse. April is vacay time in the country with most schools shutting down for the summer break. With flights being grounded and ticket prices soaring, your annual family holiday might just be in peril. This time instead of blaming each other, you can blame Jet.
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