By starting an airline in India. I am merely paraphrasing a popular quote from Richard Branson:
Some of the private airlines that were launched in the last few years are either openly backed by relatives of politicians or are rumoured to have financial links to them. Many of these businesses were started during the boom years of 2005-07. Most of them were willing to stay in the market for the stipulated 5 years in order to start flying on lucrative international routes.
Since 2008, things have gone from bad to worse for the new entrants. The unprecedented spike in oil prices in 2008 followed the sharp slowdown in the economy in 2009. Just as the business cycle was recovering in the last 18 months, oil prices are climbing back up. At the best of times, this is a tough business to be in. It requires huge capital investments, it is highly sensitive to external factors(oil prices, volcanic ash eruptions, communicable diseases) and margins are wafer thin.
In the last week following the turmoil at Kingfisher, it is strange to hear that one of the solutions being proposed is to allow FDI into the sector. By all means, it is great to have more investments and fresh thinking. But, seasoned foreign airline operators who understand the industry in India are reluctant to take up on that offer.
Perhaps, the biggest favour the government can do to the industry is to excuse itself from the business of running an airline and liquidate Air India. That would save some precious tax payer resources and destroy some capacity on the more profitable routes. The approach to pricing Aviation Turbine Fuel(ATF) needs to be reviewed carefully. Tax rates levied on ATF give you a distinct impression that the government still thinks commercial aviation is only for the rich elite.
The process of granting bilateral rights to foreign airlines needs to be made more transparent. The stubborn refusal to let Lufthansa operate the A380 to Delhi and the rapid proliferation of gulf based carriers into major Indian cities are two cases in point. Some of the metro airports still suffer serious delays because of congestion throughout the year and especially during the winter due to fog. Despite rapid improvements,infrastructure at some of the airports is still not up to snuff.
Above all, there should not be any knee-jerk policy changes in order to help any ailing airline. Bring in long term structural reforms and get out of the way so that badly run airlines collapse under their own weight. Until that happens, vain billionaires will continue to fancy their chances in this difficult industry and risk being reduced to millionaires.
"The easiest way to become a millionaire is to start out a billionaire and go into the airline business."Kingfisher airlines' struggle for survival highlights the challenges facing the airline Industry in India. Adding to longstanding problems of congestion in major airports, high taxes on aviation fuel and steep fees charged by metro airports is the cannibalistic competition among airlines. It is not all about private enterprises striving for market dominance. You have a taxpayer funded spectacle in the name of Air India further distorting the playing field. After several years of steep losses and a half-hearted backing from the Government, Air India is still adding capacity in the market and competing for passengers, thereby putting downward pressure on ticket prices.
Some of the private airlines that were launched in the last few years are either openly backed by relatives of politicians or are rumoured to have financial links to them. Many of these businesses were started during the boom years of 2005-07. Most of them were willing to stay in the market for the stipulated 5 years in order to start flying on lucrative international routes.
Since 2008, things have gone from bad to worse for the new entrants. The unprecedented spike in oil prices in 2008 followed the sharp slowdown in the economy in 2009. Just as the business cycle was recovering in the last 18 months, oil prices are climbing back up. At the best of times, this is a tough business to be in. It requires huge capital investments, it is highly sensitive to external factors(oil prices, volcanic ash eruptions, communicable diseases) and margins are wafer thin.
In the last week following the turmoil at Kingfisher, it is strange to hear that one of the solutions being proposed is to allow FDI into the sector. By all means, it is great to have more investments and fresh thinking. But, seasoned foreign airline operators who understand the industry in India are reluctant to take up on that offer.
Perhaps, the biggest favour the government can do to the industry is to excuse itself from the business of running an airline and liquidate Air India. That would save some precious tax payer resources and destroy some capacity on the more profitable routes. The approach to pricing Aviation Turbine Fuel(ATF) needs to be reviewed carefully. Tax rates levied on ATF give you a distinct impression that the government still thinks commercial aviation is only for the rich elite.
The process of granting bilateral rights to foreign airlines needs to be made more transparent. The stubborn refusal to let Lufthansa operate the A380 to Delhi and the rapid proliferation of gulf based carriers into major Indian cities are two cases in point. Some of the metro airports still suffer serious delays because of congestion throughout the year and especially during the winter due to fog. Despite rapid improvements,infrastructure at some of the airports is still not up to snuff.
Above all, there should not be any knee-jerk policy changes in order to help any ailing airline. Bring in long term structural reforms and get out of the way so that badly run airlines collapse under their own weight. Until that happens, vain billionaires will continue to fancy their chances in this difficult industry and risk being reduced to millionaires.
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