How do you fix a national aviation market suffering from a glut in capacity, several carriers on the brink of insolvency and extensive governmental regulations? In the case of India it seems that Parliament has a few ideas and it isn’t clear whether they’re actually hoping to solve the problems or make them worse.
First up, a Parliamentary panel has ordered a probe into the pricing of tickets on the part of Indian airlines. The panel suggests that "most of the airlines operating in the country had been overcharging the passengers by increasing the air fares unreasonably" and is seeking to determine whether the hikes were performed in collusion with each other or some other inappropriate manner. And they are seeking to penalize the carriers who may have violated any laws. More than just seeking to review the current state of airfare pricing, the panel is also suggesting that massive changes in the fare structures may need to be implemented. The group wants to see a clear formula for airfares rather than the current "whatever we can get" approach and such a system implemented rapidly – within 3 months.
And as if that isn’t aggressive enough, there is also discussion of fare regulation in the Indian aviation market. The report filed by the Standing Committee on Transport, Tourism and Culture is suggesting that "in future all the airlines may be asked to increase their fares only with the approval of DGCA." Clearly these moves have the potential to improve the environment for passengers by keeping fares low. At the same time, it is not clear how the moves will help the airlines remain in business long enough to actually fly the passengers on the cheaper fares.
More recently the Civil Aviation Minister, Ajit Singh, has indicated that there is great value to the country in growing the low-cost aviation business model. Calling it a "key trend" in the country’s developing economy, Singh is suggesting that 15 new airports be built around the country in order to serve the airlines and provide additional connectivity to more remote areas. Goa, Navi Mumbai and Kannur are three of the bigger target markets for such construction. Of course, adding these airports and increasing the capacity in the market will likely only be successful if the fares can remain incredibly low (see above) and there is no indication that the airlines are looking to fly passengers around whilst losing money going forward. Even an annualized growth rate of 15% in passenger numbers over the past 10 years would have trouble supporting the market if the fares are too low.
The Indian aviation market is facing a number of challenges these days. It would seem that the government is but one of them.
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Really good analysis and also entertaining writing style. Thanks for quality original content which keeps me coming back to your blog for more.
Their first step should be letting their carriers freely join global alliances. It’s their reluctance on that front that allowed EK to be the “de facto” national carrier for a nation of 1 billion.
Some consolidation would be nice, given that the population that could afford air travel at all is a tiny fraction of the nation as a whole.
Finally, ease the visa costs and restrictions. DEL/BOM are perfectly situated to replicate the success of DXB/DOH (plus enormous domestic feed). I dream of the one day when I could do EWR-BOM on UA then BOM-HKG on 9W, seamlessly.
The government of India has created an over-regulated, unprofitable, undesirable business environment, and they’re blaming everyone but themselves for their problems, like a selfish, spoiled brat. I wouldn’t be surprised if, one day, there are no domestic Indian airlines.
Isn’t the Indian government its own worst enemy in virtually every arena of the economy? This is a country where everyone has a diesel generator because the electric supply system is so unreliable even in urban areas. This is a country with border crossings between internal states. This is a country where everyone wants to be a government minister so that they can be a chokepoint on private decisions
There is NO…NEED…TO WOORRY!
There is something that indigo must be doing right as it is making money and gaining market share. I am sure they are playing in the same environment and other airlines can probably learn from them how to be profitable. I doubt govt is the reason for all their problems.
IndiGo Air makes Rs 88cr operating loss in 2011-12
http://www.moneycontrol.com/news/business/indigo-air-makes-rs-88cr-operating-loss2011-12_795079.html