Saroj Datta, in his 50 years with both global and Indian passenger carriers, has seen the ups and down of the sector at close quarters. He helped Jet Airways chairman Naresh Goyal build the airline from scratch in 1993. With all airlines, barring low-cost carrier IndiGo, reporting losses as fuel costs and interest rates pinch them, Datta says there are no signs of any immediate recovery. All carriers have been pursuing a policy of chasing market share without paying attention to the impact on the bottom line, Datta told FE?s Debabrata Das and Baiju Kalesh. Edited excerpts:
What is your opinion of the current state of the aviation industry?
The industry is in a terrible financial state. A majority of the Indian carriers have reported substantial losses for the second quarter of this fiscal and it seems most likely that the industry will close this fiscal in red. There are no signs of a recovery starting soon. It?s a situation that no one in the industry, at least not me, had bargained for notwithstanding the many negative factors, largely policy related, that the airlines have been trying to tackle since the early nineties when the liberalisation process began. Policymakers have to recognise that the operation of air services and widespread air connectivity both within the country and internationally is vital for the country?s economic growth.
How did airlines get into this mess in one of the fastest growing markets?
The reasons are too well known and familiar to bear repetition. These are high fuel prices, local taxes levied by state governments, archaic regulations such as ?route dispersal guidelines?, restrictions on recruitment/employment of qualified and experienced expatriate pilots and the economic slowdown. What has made the situation worse has been the market environment that the players have regrettably created over the last few years. Following the emergence of low-cost carriers from around 2005, encouraged by the buoyancy of the Indian market, all carriers have been pursuing a policy of chasing market shares without paying attention to the impact on the bottom line.
Airlines have added capacity, dropped fares, often below economically viable levels, to attract traffic and indulged in price wars resulting in a sharp decline in the average yields. This, at a time when input costs have escalated largely due to factors beyond their control. Regrettably, policies ensure that there is no level playing field for the privately-owned carriers, creating unavoidable inefficiencies.
What can airlines do to recover?
They need to restructure their strategies and battle plans. Consequent to the country?s rapid economic growth, there has been a rapid expansion of the middle class, an important aspiration of which is to travel by air resulting in an above average growth in the domestic air market. In addition, the market has inevitably, therefore, become highly price sensitive. There are two clear segments ? the larger group looking for low fares. The second is the more affluent, whose criteria for choosing a carrier is convenience, quality of service or comfort level. Each operator, therefore, has to decide what segment of the total market it wants to serve, so that it can offer the right type of product.
How will you compare Indian low-cost carriers with that of the West?
Ryanair was successful because it went to subsidiary airports where the charges were lower than major airports and offered incentives so that the airport costs, such as landing and parking charges would be lower, thereby enabling the operator to charge lower fares. For the airport operator, it would be an attractive proposition since otherwise it would not earn any revenues. This is, however, not the case in India where the charges payable by, say, IndiGo would be the same as those by full-service airlines. However, a carrier like IndiGo has lower unit costs because they can fit in a larger number of seats by eliminating galleys and having fewer toilets, aspects which I feel passengers are prepared to give up in exchange of lower fares. In my opinion, this should have led a carrier like IndiGo have 25-30% lower unit costs than the full-service carriers. But it seems they have done better ? how I don?t know. May be I?ll get to know more when they go in for an IPO. However, the future will not wholly belong to the low-cost carriers.