Prema
The Indian Aviation Industry is going through very bad phase. Most of the airlines are in red including State owned Air India and private airlines with the exception of Indigo Airlines.
Air India
Experienced pilots hired in the last three years in India to work new international routes describe “Air India” an airline with problems.
Passengers have abandoned Air India in droves, shunning the airline because of its reputation for poor customer service and late flights. Formerly this nation’s monopoly carrier, Air India has been surpassed commercial Indian airlines — Jet Airways, Kingfisher and IndiGo — among those that have sprung up since India deregulated the domestic industry nearly two decades ago. Air India now has less than 15 per cent of India’s domestic air travel market, with many empty seats on the flights that do take off.
As a result, Air India lost more than $1 billion in taxpayer money in the fiscal year (2010-2011). And now there is a growing public clamour for the government to go out of the airline business.
Spokesmen for Air India defend the airline as safe and say it is working to correct its problems. And the nation’s new civil aviation minister, Vayalar Ravi has stated that there is no question of Air India being shut or privatised and government will not give up the airline.
The airline had been mismanaged in the past .Nothing came positive of the merger in 2007 of India’s domestic and international state-run airlines. Air India bought too many planes.
Air India’s image was not helped recent10-day pilots’ strike over salaries. It ended with a government pledge to raise pay — but not before the work stoppage had caused cancellation of nearly 1,500 flights and added almost $50 million to Air India’s mounting losses.
Hoping to win back customers, Air India is slashing fares and planning to expand, even though it loses money on 95 per cent of its flights. Analysts say the prospect of a fare war threatens to destabilise the entire Indian Airline industry and to erase the previous predictions carriers of profits this year.
For many of those who joined Air India, the culture clash has been severe. Dozens left before their three-year contracts expired. Of the 186 foreign pilots hired since April 2007, Air India has just 36 left, the company said.
Air India, with its subsidiary, Air India Express, has about 1,600 pilots and a fleet of more than 120 aircraft making more than 300 flights a day. But pilots’ schedules are still made in a giant ledger.
Air India was free of major accidents for a decade — until a May 2010 crash in Mangalore that killed 158 people. The captain, a Serbian, came into the landing too high and did not abort it when he should have.
Kingfisher Airlines
As Kingfisher Airlines careens toward collapse, the Indian government finds itself between a rock and a hard place.
The government will face political heat if it tries to rescue a money-losing private carrier especially one owned by a flamboyant liquor baron.
If it lets Vijay Mallya’s airline fail, however, the government will hurt state-run banks, which own about a fifth of Kingfisher’s shares and three-quarters of its $1.3 billion debt.
Kingfisher is struggling with fewer flights and pilots, staff demoralised by unpaid salaries, and outstanding dues to aircraft lessors, oil companies, airports and tax authorities.
It needs at least $400 million quickly to keep flying, figures Centre for Asia Pacific Aviation (CAPA), a consultancy firm. Mallya’s plans to raise funds through a share sale have been stalled and he has been lobbying the government to get state-run banks to lend more.
The fast clip at which the government has moved to change regulations in the past two months – airlines can now directly import fuel, lowering their costs, and private carriers can fly overseas more – has lifted expectations that Mallya may eventually win the help he needs from the government.
A government bailout for a private carrier would not go down well with the public in India, where airlines are still not the common man’s preferred mode of travel. Conscious of that, the government insists it is not looking to bail Kingfisher out.
Saving a private airline would be risky for government, which has faced pressure from allies, political opponents and civil activists for more than a year over graft.
Mallya, whose liquor business clout helped win him a seat in the upper house of parliament two years ago, could use his political ties to save the carrier he started in 2005.
Allowing foreign carriers to buy a stake in Indian carriers is probably the key policy step Kingfisher desperately wants the government to take. Unlike in 2007, when ailing airlines were bought over by Kingfisher and Jet Airways ,there are no domestic carriers circling to buy up rivals today.
Foreign carriers have shown little interest so far in investing in the Indian airline sector, which has grown by 17 percent in 2011 but intense competition has driven five out of six local carriers to massive losses.
As per estimates , Indian carriers are on course to post cumulative losses of up to $3 billion for financial 2011/12.
FDI is not the answer to all the problems. Indian carriers need to resolve the fundamental issues of excess capacity, high cost structures and unviable pricing strategies.
Dreams Turn Sour
After India embraced economic reforms two decades ago, a slew of private carriers rose in the Indian skies and then ran into the ground.
Modiluft, East West, NEPC Airlines and several others shut down operations within a few years of their launch for reasons ranging from inability to manage cost to funding concerns.
Mallya, who had so far run a very successful liquor empire – turning it into the world’s second-largest by volume through acquisitions – probably chose to ignore past lessons.
He took pride in getting a five-star rating for his airline, making it the first Indian carrier to provide passengers with a personal video screen, offered a superior level of service and even hand-picked air hostesses himself.
For Mallya, who owns several yachts as well as cricket and Formula One teams, an airline was an extension of his persona.
In a rush to expand, Mallya acquired Air Deccan in 2007 for $220 million, a deal that saved the tottering low-cost carrier but over-leveraged Kingfisher.
Soon after, a global downturn hit Indian carriers hard, choking access to the equity market. Most airlines survived the crisis, but a debt mountain built up at Kingfisher and the top carrier, Jet Airways. Equity markets recovered, but Kingfisher failed to raise fresh funds.
This, along with operational losses partly due to high fuel costs – Kingfisher has never reported a profit – were crippling.
Questions have also been raised about its business model.
“India is a very price-sensitive market. In transportation, it is a volumes game; many of the frills do not matter in a short two-hour flight,” as per global consultancy firm KPMG.
What passengers really want is on-time performance (OTP), clean and safe aircraft, efficient service and low fares.”
Kingfisher now flies only 175 daily flights from a peak of 400 six months ago, with only 28 of its fleet of 64 operational. Lessors have started cancelling leases for planes, and the aircraft Kingfisher owns are mostly pledged with lenders.
An uncertain future and delayed salaries have driven away about 300 pilots and a few hundred other staff to rivals.
The carrier is also losing prime slots at key airports, which, along with a staff crunch, may prevent a quick return to normal operations even if it does survive this debt tsunami.
The company is now seeking to restructure its $1.3 billion debt, which may force lenders to take a writedown, extend fresh loans and make Mallya plough in fresh equity.
This has been in the works for six months, however, and it is unlikely an agreement can be reached in a hurry.
The Fallout
Kingfisher’s end, if it happens, would be the biggest failure in Indian aviation history and would impact the sector in the short term.
“If you see such a substantial number of seats being removed from the market suddenly, it will have a very adverse impact on the fares,” as per chief of India’s aviation regulator.
A collapse could also lead to thousands of job cuts and the withdrawal of flights on some loss-making routes that Kingfisher flies exclusively or shares with state-run Air India.
Kingfisher’s market share in domestic skies, which has halved to about one-tenth in recent months, will get divided among rivals, with the low-cost carriers benefitting most.
Ever since Air India and Kingfisher flew into turbulence, budget carriers’ market shares have increased dramatically.
If he falters and the government withdraws the life support, Kingfisher could run into the ground quickly. The failure would also dent Mallya’s image, crafted through the years with massive display of wealth, wine and women.
But business cycles can be cruel and those traditional values of caution and prudence take precedence over unfettered ambition.
Dream Dare Win
www.jeywin.com
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