FE Editorial : Flight to nowhere

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The Financial Express: Dec 26 2012, 22:20 IST

Airlines world over have traditionally been tough businesses with few carriers able to make money consistently. In India, the first round of privatisation, in the early 1990s, saw no survivors—all three carriers East West, ModiLuft and Damania sank without a trace. Some of the second crop of players, however, have done well in a more liberalised economic environment and while some of them may be heavily indebted—Jet Airways, Indigo and SpiceJet—have all built up strong franchises. So far there has been one casualty—Deccan Aviation—which was bought out by Vijay Mallya, in a spectacularly bad decision. Going by the look of things, Kingfisher Airlines could be the next. The decision to buy Deccan apart, Mallya’s more than full-service model for KFA was in itself seriously flawed because there was not enough of an addressable market, over a sustained period, that would earn KFA the kind of fares that it needed to be able to cover its ever increasing costs. In other words, the top line for such a product simply didn’t exist even as costs continued to rise. To their credit, the value value carriers like Indigo and SpiceJet read the Indian market more correctly by not going over the top with their revenue projections but instead keeping costs in check and focusing on service. KFA’s expenses incurred in running a full-service airline—and servicing the huge debt on its books—simply got out of hand at a time when the rising price of crude oil and high taxes on aviation fuel hit

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