What should the Government's role be in the aviation sector? Should it be extending a helping hand to an individual airline when it is in distress, or should it be creating an environment which will help all the players in the sector to not only survive but also thrive?
These are some of the questions being asked, given the current state of the industry, and the attempts being made by the Government to bail out the state-owned Air India (AI). Earlier, there were also rumours that the promoter of Kingfisher Airline, Mr Vijay Mallya had approached the Government for help.
GOVERNMENT'S ROLE
There can be little doubt that the Government's role has to extend much beyond helping out a single airline in financial trouble. One of the most significant aspects of the Government's role is reducing input costs, most of which it controls. Take, for instance, the sales tax on aviation turbine fuel (ATF). This varies from 4 per cent to more than 26 per cent in different states throughout the country. Given that domestic ATF prices are almost 50 per cent higher than what an airline pays in, say, Singapore or Dubai, any decrease in its prices in India will hugely benefit the industry.
The Government should also focus on some other equally significant aspects which impact the industry as a whole. These include better air traffic flow management, and taking steps to decrease the holding time for an aircraft in an airport, so as to decrease flying time, thereby reducing consumption of ATF by home carriers. These are much-needed aspects that the Government should concentrate on, as these high-input costs are having a negative impact on the industry.
The Federation of Indian Airlines (FIA) has pointed out that due to high-input costs and low fares in the country, domestic airlines are likely to report a loss of approximately Rs 3,500 crore during the first six months of the current financial year. At a more micro level, the Government also has to step in, to ensure that predatory or irrational pricing mechanisms aren't followed by some airlines, so as to ensure that there is a level playing field for all. In this connection, FIA has also called for establishing a regulatory mechanism that would prevent malpractices like predatory pricing.
VISION 2020
What is needed to achieve all this is establishing some kind of a consensus on the need to bring down input costs, and putting in place a model which will facilitate growth. However, what is happening right now is that the Government is looking only at regulatory aspects like keeping a check on the fares that the various airlines are charging. The Government did take some initiatives in the past to help the industry along, though these were half-hearted at best. For instance, talk of a policy for the aviation sector has been doing the rounds for decades — both during the tenure of Prime Minister Mr Atal Bihari Vajpayee and also for some time during UPA-I's tenure. However, the nomenclature of the policy was eventually changed to Vision 2020.
The Vision 2020 statement envisaged the creation of enough infrastructure to handle 280 million passengers by 2020. Further, investment opportunities of $ 110 billion up to 2020 were also envisaged, with $ 80 billion in new investments. However, in the end, this so-called policy document was forgotten.
Then the Government did try and mitigate some of the problems being faced by domestic airlines in October 2008. When the industry was reeling under losses, the then Ministers of Civil Aviation and Petroleum met, following which it was decided that the oil companies will revisit ATF prices every 15 days, so as to immediately reflect any upward or downward movement in prices of fuel in the international market, thereby ensuring that that the airlines were better equipped to deal with these fluctuations (earlier the prices were revisited once every month). But such initiatives have been few and far removed. And, needless to say, they have had no impact on improving the health of the sector.
Given that today Air India is knocking on the Government's door with a begging bowl to stay afloat, Kingfisher is in a no better state and the industry as a whole is reeling under losses, the need for the Government to start thinking about improving the health of the industry as a whole is even more urgent.