Lean Is In

Grim realities of the aviation industry seem to have finally dawned on those at the helm of affairs. With the UPA government back in the saddle—and, fortunately for the Indian civil aviation industry, Praful Patel picking up the reins again—there is renewed hope. In his recent statements there is evidence of greater understanding of the gravity of the situation facing the industry. For the first time the minister exhorted airlines to restructure business models and aim towards “lean and mean” organisations in order to survive.

Apparently, even retrenchment of employees, which the government had opposed barely a year ago, is no longer taboo. As if on cue, Jet Airways recently handed pink slips to 110 employees, including 60 probationary cabin crew, on the eve of May Day. Last year, anger and street protests had erupted following retrenchment of 1,900 Jet Airways employees with indications of more to follow. Ironically, the decision was made public even as India Aviation 2008—the country’s very first trade show related to civil aviation—was being inaugurated at Begumpet, Hyderabad. Seeking to quell the uproar, the Minister of Civil Aviation (MoCA) had initially dismissed it as the airline’s internal matter and maintained that the government really had no role to play. Later, when under mounting opposition Jet Airways backtracked and reinstated the employees, MoCA claimed it had worked behind the scene to engineer this change of heart. Understandably, with national elections barely a few months away, no political leader could afford to antagonise any distinctive section of employees, be it in the private or public sector. Today, the same political dispensation seems more inclined to correct its blinkered vision.

Since the so-called boom in civil aviation began in 2004 driven by a resurgent economy, business prospects for the airline industry appeared deceptively bright. However, all airlines in India have been consistently in the red since then, sinking further into the abyss as international price of crude touched $147 (Rs 7,000 crore) per barrel in 2008. By the end of the financial year ending March 2009, it is believed that all the airlines in India had accumulated losses totaling to Rs 10,000 crore. Air India was responsible for around 50 per cent of the total cumulative loss. But the price of fuel was not the only cause. Airlines, despite operating in a high cost environment, were levying unreasonable airport charges, were generally overstaffed, inordinately lavish with salary structures and offering loads of frills for passengers most of which were quite unnecessary. Passenger volume was not high enough to sustain the number of airlines vying for market share and lack of infrastructure often degraded efficiency, adding to cost of operations. Air fares remained depressed to un-remunerative levels and in the face of fierce competition, airlines appeared diffident and helpless to alter the status quo. Evident to all but the management of airlines, the business models were somewhat illogical and not in tune with the financial paradigms of the industry.

Worse, the government appeared indifferent to the progressively worsening plight of the airline industry. Focus seemed to be on milking a convenient source of steady income even as the airlines bled. Any attempt by the airlines to come to an understanding to jointly hike fares was perceived by the government as a ploy to encourage cartelisation and stoutly opposed. Suggestions regarding rationalisation of fuel prices and removal of restrictions on investment by foreign airlines in the industry were repeatedly rejected. Losses continued to mount. Meanwhile, one airline discontinued operations and three others merged with larger entities. The total number of airlines shrank from 11 to seven.