Civil Aviation industry of India

India has been experiencing extraordinary growth in civil aviation over the past decade. It is now the ninth largest civil aviation market in the world, with a market size of around US$ 16 billion. Till 1991, the sector had a monopoly in the only public airline in India (two in fact)- Indian Airlines (for domestic) and Air India (for international). Their operations and businesses were serving to themselves. Therefore, they could dictate their terms to its passengers who had no other choice but to accept whatever had been available- irrespective of the quality of service, pricing, hospitality and comfort.

With the commencement of globalisation, new operators entered the market with a lot of newer vistas, compared to the public airlines which had been in operation for decades. Some of them started as No-Frills Airlines where as others catered to the upper segment of the passenger segment by offering luxurious facilities. Throughout all these years, most of the airlines have been introducing various lucrative strategies to retain their passengers and to attract newer passengers.

But still, brand switching is increasing day by day and remains a capricious issue. Despite all the extraordinary growth in traffic, most of India’s airlines are in a precarious condition. Presently, most of the civil air carriers in India are in financial distress. The government-owned carrier, Air India, has a total debt of approximately Rs 51, 367.07 crore this year. The relationship between ownership structure and airline performance is highly correlated (whether it is private, public or a hybrid of both) where as another one, KingFisher, was grounded a few years ago.

5/20 Rule

Under the Indian government’s stipulation, practiced for a decade, it was mandatory for any Indian airline to have a fleet of at least 20 aircrafts and five years’ experience in operating domestic services to seek international air service operations. The new civil aviation policy states that the permit for the international air service operations will be based on a scale of its fleet up to 20 planes or deploy 20 percent of capacity on domestic operations. Now, it has changed from 5/20 to 0/20 rule, meaning that the operator does not have to fulfil five years of flying before applying for international routes.

‘AIR KERALA’

Kerala as a paternal state is, by-and-large, an accurate description and it is overtly represented in the proposal to have an airline company of its own. The new airline project called ‘Air Kerala’, advanced by the state government, is a wonderful socialist tool.

The main idea of the project is to start an airline with privileges similar to the national carrier, Air India. The airline had initially planned to commence the operations in 2013, but the Central Government’s old 5/20 civil aviation policy was a hurdle. The new 0/20 civil aviation policy, promulgated by the Government, rekindled the hopes for the wings of Air Kerala to fly. If it happens, Air Kerala will be India’s first airline with a State government as one of the primary stakeholders.

It is estimated that Air Kerala would benefit about 220 million passengers in the next five years. The objective of the airline is to operate international flights to the Middle East, where around 90 percent of Keralites are employed. The reasons cited for the government to propose Air Kerala is the hardship faced by the Non-Resident Keralites (NRKs), due to high airfares and frequent cancellation of flights between Kerala and the Gulf countries.

‘AIR KERALA’ as a Public Undertaking

The plan for the state-run airline ‘Air Kerala’ is to raise Rs 200 crore through equity as initial capital. The State government, Cochin International Airport Limited (CIAL) and other public sector companies will together hold 26 percent of the shares of the company while the remaining 74 percent will be issued to individuals and private groups.

Performance of Two Airline Companies

At the beginning of 2014-15, Jet Airways had outlined a three-year turnaround plan to increase the profits. The plan had various standalone measures and synergies with Etihad Airways. Jet Airways had an enhanced synergic strategic partnership with Etihad Airways and other allied Airways partners. These efforts were primarily aimed at saving the airline from making losses. Presently, the two airlines together offer more flights to and from India than any other airline, with a 17 percent share of the country’s international air travel market.

After an eight year gap, Jet Airways have gained profits at consolidated levels. In 2015, the fiscal second quarter profit rose by 25 percent. On the other hand, Air India has been experiencing a precarious financial position. Recently, the Minister of Civil Aviation has stated that no one will come forward to buy Air India given the balance sheet they own. Such is the dire situation in which the airline has landed. This a good example of how a public undertaking was systematically destroyed through incompetent leadership, rank disastrous planning and, worse, implementation of Government.

Vivid Example of Privatisation of British Airlines

The main reason for the privatisation of British Airlines was that when it was a public enterprise, it turned to be a parking lot for the politicians and their political supporters. It resulted in unprofessional management.

The second reason was that the British Airway’s productivity was very low compared to its competitors. The losses of British Airways were increasing year by year. Under public enterprises, the efficiency, profitability and debts are not such an important criterion for government managers while they own such such a big public enterprise.The administration will be flexible and will not be an experienced one like in a private firm.

The method used to privatise British Airways was “fixed-price offer”. After privatisation, their profits boomed. It helped them to close the gap between the aviation industry and the British Airways. The privatisation of British Airways was a success. It helped the company to be a world airline. The success story of the privatised British Airways could be a real example for those airlines that are waiting to be privatised.

Dr D Dhanuraj & Lakshmi Priya

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