‘CHEAP AVIATION’ IS DANGEROUS…

As a consumer and a citizen of India, one cannot but be completely stupefied by the state of the civil aviation in the country. The ‘open skies’ policy that envisaged a vibrant growth of the industry while at the same time promising air travel to the common man has been an unqualified failure, as is clearly apparent from the sorry state of once high-flying operators. The owner of Kingfisher Airlines is a fugitive economic offender and now, Jet Airways is flying on a similar trajectory of fold-up – the reasons may well be different. Less said about the national carrier, the better – it would have been long dead and buried without the periodic CPR and oxygen administered by the Union Government.

Affordable flying is a noble intent but apparently, the business models adopted by our carriers do not seem to render operations profitable – quite the opposite. The airlines are not generating revenue to even pay the crew for months together. Trying to sustain such models will obviously push all the remaining carriers to bankruptcy, sooner than later. India is a country where the GDP per capita is in the region of $ 2000 in comparison to the richest nation in the world where it stands at $ 175000. Therefore, all these ‘Udaan’ kind of initiatives are obviously detrimental to the health of the aviation industry. Aviation is a ‘high fixed-cost’ industry and costs of aviation fuel, maintenance, lease payments, parking costs and crew remunerations are going North while at the same time, cut-throat competition is not allowing a commensurate increase in fares, resulting in a clearly unsustainable situation where air fares are often lower than premium train AC fares. Alas, realism has fallen victim to populist measures. It is well past the time when we should have increased air fares, lowered the astronomical crew salaries, curtailed overheads and strengthened other forms of transportation. Better late than never – but let us start for heaven’s sake.

Safety is intrinsic to flying and all carriers must ensure adequate assurance on this critical aspect. Though there are basic minimum standards ensured by the regulator, operators rarely if at all, invest in advanced concepts and tools that accrue cost savings in the long term. The biggest losses in any organisation do not happen due to major accidents as these are rare. Substantial losses occur due to the cumulative impact of minor incidents and ignored risks. Operational risk management may help in averting major disasters or aid in speedy recovery with minimal impact, in addition to saving costs on repairs, maintenance and compensation. Having such robustness needs concerted effort and additional funding; and aviation industry business models must factor this as an essential feature of their operational strategy. Our national regulator, DGCA, also needs to rethink its own functioning and get contemporary with a larger infusion of domain experts who can deliver on stringent aviation safety commitments.

Funding and corporate governance also seem to have their own dynamics. The Kingfisher and Jet stories appear to suggest that stakes of the promoter at the time of borrowing investment capital may be insufficient to ensure efficient operations in the long term and fails to generate profits essential for repayment of debt. With just 10% stake, it is possible to obtain 90% funding from banks. Banks lend money on projections. Who makes these projections? And what happens when such projections fail? Anyway, once the money is released, it seems like a good strategy to park this borrowed money from Indian banks abroad and buy asylum in advance as the promoter knows beforehand that default is either deliberate or inevitable. Otherwise, is it so easy to seek shelter in a foreign country? Perhaps, it is a strategy that the rich, famous and connected can pull off with ease. Further, financial matters of such proportions are rarely decided by one individual. Surely, there are Boards of Directors and Auditors without whose approval or knowledge, no major financial decisions are normally taken – and this points to their total complicity in crime. Very few business houses of stature with the capability and financial muscle to steer the growth trajectory of our country can boast of a corporate culture that is clean and transparent. Sad but true!

Coming back to the humble flyer – please do not be enamoured with cheap fares. An air ticket that costs Rs 20000 cannot be sold for Rs 2000 without compromises being made or shortcuts being taken. And evidently, that cannot be offset by selling a sandwich costing Rs 20 for Rs 200. As a general principle, if anything is too good to be true, it is either short-lived or designed for short-term gains of a handful of unscrupulous individuals. Quality and safety come at a price which airline operators and consumers ought to pay. ‘Cheap Aviation’ is dangerous – we will never know when or where the next corner will be cut. The results could be catastrophic.

28 Replies to “‘CHEAP AVIATION’ IS DANGEROUS…”

  1. Hello. I have checked your dasumegaphone.com
    and i see you’ve got some duplicate content so probably it is
    the reason that you don’t rank high in google.
    But you can fix this issue fast. There is a tool that generates content like human, just search in google: miftolo’s tools

  2. I have noticed you don’t monetize dasumegaphone.com, don’t waste your traffic,
    you can earn extra cash every month with new monetization method.
    This is the best adsense alternative for any type of website (they
    approve all sites), for more details simply search in gooogle: murgrabia’s
    tools

  3. Great Read Sir
    The issues have been flagged appropriately and any big and responsible sector such as Aviation should not be found napping. Besides the fly by wire operators setting up airlines businesses lured by glamour and the profits, it’s also the business of regulatory bodies and Government agencies to keep a close watch and bring in mechanisms to safeguard the operations and ensure sufficient profit margins to the Airlines to help them innovate and grow . Why are the airlines in India being taxed so steeply on fuel and other charges when their survival is threatened ? Secondly it is the leadership which counts . The management of ‘Indigo’ is a case in point which has managed to deliver consistently within the constraints imposed in the sector. Further , why can’t the airlines talk to each other to share assets or seats in a particular sector to cut down on wastages . Why do they foolishly keep operating with dwindling profits without bringing in fresh and newer processes .For the airlines to survive they need to facilitate inclusive growth by joining hands and adopt disruptive innovations to stay in business .

  4. A succinct article which truthfully brings out the hard facts. Cheap air fares tapped into the common man’s mindset to lure even the non flyers to opt for air travel.
    It was like one factoring only the price and to an extent the mileage of a four wheeler prior buying one without even glancing through its safety features. But new regulations and policies on the safety aspects of four wheelers ought to change things for better.
    The aviation industry has been the front runner when it came to safety standards but the recent spate of accidents requires everyone concerned to come to the drawing board to find mitigating measures.

  5. Actually safety record of Indian Aviation is one of the best in the world. Traffic density is huge! In Delhi a flight takes off every 3 minutes. As regards competition, ultimately the weak airlines will cease to exist and 4 odd players will remain. As regards Jet it is sad. Jet at the end if the day was a great product!

  6. As always a very well written article. But a few inputs sir. One, travelling by airline is the safest mode of transportation . In the world & in India….trains, car driving, cycling even walking on the roads…..all are more dangerous statistically. Two, the airline industry worldwide contracts and expands based on world economy. Three, airline industry worldwide has seen extreme competition….resulting in A & M…acquisitions and mergers.. North America, Europe….everywhere. Fourth, it is an highly overregulated industry, with its attendant costs. In India, the biggest stumbling block is that Avn Fuel is not under the GST ambit & continues to be highly overtaxed by one and all. The safety standards in India are by and large same or stiffer than best in the world. Fifth, there has been a huge impetus on air travel by the GoI, with upto 20% growth year on year in India, making it one of the worlds fastest growing market. This has happened with the opening of military airfields to civil traffic (Adampur, Hindon Shibpur etc) as well as creation of new airfields at thus far neglected areas. I travelled recently to back of the beyond Kishangarh in Rajasthan on a RCS flight. AAI ‘s brand new, small, no frills airport. Pakyong in Sikkim is another example. We have done quite well in the past two decades, but our progress in the past four years in this area has been remarkable. Do we need to do more as the article espouses? Yes sir, definitely mes ..miles to go……

    1. Sir, your article gets one thinking.
      I feel that market forces should be allowed to shape the business environment.
      Government should focus on safety issues through a regulatory mechanism. There is a need for companies to adapt to changing trends ( successful companies like Kodak went out of business because they failed to adapt) similarly King Fisher and Jet Airways are into trouble because they could not rework their business model.
      Like it or not, now it is the time for LCCs. Of course that does not imply that safety and maintenance issues can to be short changed.

      1. Agree Ranadeep. Kodak may have tried but lost on earlier investments which didn’t match the pace of technological development.

  7. Very well written. For Indian economy, I agree full content. Basically the issue comes from competition. It provides customers with lots of benefits. But if it turns into a big mess like what aviation sector is facing in India, then somehow some kind of regulation needs to come. But again it is not good to create a web of regulation that may impede innovation.

  8. Very topical issue that echoes the sentiments of a concerned citizen! You have very rightly pointed out there is a general perception that DGCA has been not been doing their job as thoroughly as is expected. Though the safety record of private airlines in India has been very good so far but the article is very timely, should things start worsening on that front as well.

  9. Sir a very nice article which elucidates the conceptual flaw of ‘cheap aviation’ and hits the nail on its head. As you have rightly brought out, ‘realism has fallen victim to populist measures’ and cheaper fares come at a price which may prove to be too costly. It is high time DGCA adopts a more pragmatic approach towards pricing rather than a popular one.

  10. Well written with valid points. In my opinion, I would still not worry too much about the possibility of ‘cutting corners’ at the level of those who are ‘hands on’ persons viz. those who service and maintain aircraft and those who fly us. These are the persons who know the aircraft is airworthy before they allow it into service each flight. The ‘corner cutting’ would be at the top end of the Company Food Chain where budgets would be squeezed and replacement of components authorised only at the absolute ‘end’ of component life. We would see more tattered seats, worn tires, unserviceable entertainment displays etc. Luckily as you rightly pointed out, it is the Regulator who has to keep a close eye and they are well supported by meticulously promulgated maintenance documentation and regular checks.

  11. Good viees sir
    It will be a repeat of things that happened in the late 90s when many of the smaller players went out of business
    remember the days when we had damania, east west, deccan
    I hope this the govt will take note of it
    Even in the us now there are only four carriers american , united , delta and south west

  12. Nice write up. Its the authorities who should look after the facts. We are ignorant and love to go on cheaper rates without knowing the details.

  13. Sir, The article very well brings out as to what ails the aviation industry in India. It appears a global phenomenon and is compounded by the fact that aircraft manufacturers are also cutting corners to hard sell their products at the cost of safety. The two recent accidents involving Boeing Max aircraft is a case in point. We as common citizens are at the receiving end of this spectrum. Hope this ends soon.

  14. Very well explained, why aviation should not be cheap.👍 Though we, ordinary people feel happy to buy air ticket at a cheaper rate, but completely ignorant about the fact that we are compromising on our safety.

  15. Excellent piece sir. It is sad to see the one sector that was supposed to be a sureshot area for growth in India, being mismanaged so spectacularly. Begs the question as to whether Indian entrepreneurs actually hv any long term plan in mind or are they in it for quick gains and a lucrative exit only? As u rightly said, it is time for the regulators to clean up their act and the airlines to follow realistic pricing models.

  16. The mother of all the issues plaguing not only aviation sector but generally the businesses across the sector’s in India is so very well elucidated in the para below without being accusatory in intent.
    “Funding and corporate governance also seem to have their own dynamics. The Kingfisher and Jet stories appear to suggest that stakes of the promoter at the time of borrowing investment capital may be insufficient to ensure efficient operations in the long term and fails to generate profits essential for repayment of debt. With just 10% stake, it is possible to obtain 90% funding from banks. Banks lend money on projections. Who makes these projections? And what happens when such projections fail? Anyway, once the money is released, it seems like a good strategy to park this borrowed money from Indian banks abroad and buy asylum in advance as the promoter knows beforehand that default is either deliberate or inevitable. Otherwise, is it so easy to seek shelter in a foreign country? Perhaps, it is a strategy that the rich, famous and connected can pull off with ease. Further, financial matters of such proportions are rarely decided by one individual. Surely, there are Boards of Directors and Auditors without whose approval or knowledge, no major financial decisions are normally taken – and this points to their total complicity in crime. Very few business houses of stature with the capability and financial muscle to steer the growth trajectory of our country can boast of a corporate culture that is clean and transparent. Sad but true!”

    1. RK spot on. Can a poor farmer project next year crops or flirt with the banks. The bankers are to be held responsible for turning a blind eye to syphoning. Happens all the time, since in news this is noticed.. Also many companies go through this process by foreign bank funding, don’t blame them as interest rates are lower, however that is high level flirting . The banks cannot be irresponsible to their investors.

  17. Spot on 👍🏼 I am however okay about well-paid flying crew. Don’t want either a disgruntled cockpit crew nor crabby stewards 😂 But absolutely true that aviation is an expensive sector, and customers should not seek cheap cheaper cheapest. Bound to be grounded then. Additionally to have govt ask nationalised banks to bail out a pvt airline is another huge pain point if u ask me. It’s wrong.

  18. The promoters with ‘no skin in the game’, or just about 10% stakes have nothing to lose, not even the conscience. Only way ahead is put them behind the bars and make an example out if it. With nil entrepreneurial skills Mallya drew air routes with a scale on the chart. Deglamourise them. Shame them. Attach their properties.

    1. Absolutely. But worth asking also, as the blog puts it so well, who makes these projections? Who nudges these projections?

  19. Caught the bull by its horns …. Whole heartedly agree with all the issues brought forth.
    Do keep writing on all relevant issues plaguing the country.
    Best Wishes.

    1. We are yet to hit the bottom before we bounce back. Mistakes of the past are being corrected gradually. I am optimistic with Udaan and other initiatives we will top the aviation chart soon. Our improved airports is one example of our will to perform and excel !

    2. We are yet to hit the bottom before we bounce back. Mistakes of the past are being corrected gradually. I am optimistic with Udaan and other initiatives we will top the aviation chart soon. Our improved airports is one example of our will to perform and excel !

Leave a Reply

Your email address will not be published. Required fields are marked *