Air travel in India has again started getting expensive, as air fares have increased by more than 50 per cent over the last one year.
Civil aviation sector has gone into deep trouble in the last couple of years, with near bankruptcy of Kingfisher airlines and rising losses of other carriers. To rescue them from financial troubles, some aviation companies have been lobbying for easing norms for foreign investment in this sector. Significantly, though 49 per cent foreign investment was permitted in civil aviation sector, Indian companies were not allowed to sell their shares to foreign companies prior to September 2012. These companies can now also sell their shares to foreigners up to 49 per cent. Public sector carrier, Air India is on the brink of bankruptcy. Some time back, government gave Rs 30,000 crore rescue package to Air India. Private companies also wanted similar package, but the government flatly declined it.
Twenty years ago airways journey was limited to the politicians, bureaucrats and other members of the rich men’s club. When annual per capita income in the country, at current prices, was only Rs 5,500 minimum one-way fare from Delhi to Mumbai used to be between Rs 6,000 and Rs 8,000. There was total monopoly of government carriers in civil aviation. Time changed and in 2011, Delhi to Mumbai fare (similarly other sectors’ fares too) reached Rs 2,500 one-way, though by that time the country’s per capita income had reached Rs 53,000. If we take account of inflation in the country, fares today appear cheaper even after 20 years. Impact of all this was that, air travel, which was limited to the top less than half percent of population, now came within the reach of the common man.
It was all thanks to one man. Capt Gopinath, who first entered the field of private sector civil aviation, was not a big industrialist. An ordinary entrepreneur, who took along a few investors, started an aviation company, Air Deccan, which was called India’s first low cost airline. Capt Gopinath once said that his dream was that every Indian must travel by air, at least once in his lifetime. One can’t say how much time it will take to fulfill his or any body’s dream; nevertheless, it is true that many, not so rich, now are enjoying air travel, which was available only to the rich. In 2000-01, less than 140 lakh domestic passengers travelled by air, which peaked in 2010-11 to Rs 541 lakh. These figures are symbolic of the fact that now many more people travel by air, when compared with the figure a decade ago. And by simply flying more people, the airlines industry has phenomenally increased its revenue.
However, over the past one year air travel has again started getting expensive, as air fares have increased by more than 50 per cent over the last one year. The people who had earlier bid farewell to rail travel, and started travelling by air, now have again started travelling by rail. In the last 10 years, the difference between rail and airfares had successively narrowed down, and to save time, many people started preferring air travel to train. However, the difference in rail fares and airfares has started widening, and air travel once again is not affordable for many people. Rate of growth in air travellers, which had reached 32 per cent (average) in the last one decade, has now turned negative (-3 per cent) in the last one year.
Fresh license
Today when the aviation sector is neck deep in trouble, with most of the companies incurring heavy losses and one company losing its license, Capt Gopinath, founder of the first low cost airlines, has stunned the market by applying for a fresh license to run a national airlines once again. He claims that he would establish his company to run aviation by the middle of 2013. Significantly, after selling Air Deccan company to Vijay Mallya’s Kingfisher, Capt Gopinath tried his fortune by starting a cargo aviation company and later a regional airline but could not succeed. Both these companies are incurring losses. However, it has not diminished his enthusiasm.
Recently, the government has allowed domestic airlines to sell their 49 per cent stake to foreigners. However, this is no solution to rescue the domestic aviation companies from crisis. Significantly, some of the Indian carriers are making good profits. This means that the crisis is not sector specific; rather it is something related to the management of some aviation companies. Therefore, foreign investment in the sector does not provide a plausible solution. Some time back, India’s largest cement company went into the hands of a foreign company. This company, along with some other big companies, formed a cartel and started fleecing consumers.
The Competition Commission of India (CCI), on the complaint of Builders’ Association imposed a fine of Rs 6,700 crore on cement companies and injustice could be partially undone. This was possible because a powerful association had filed a complaint against cement companies. However, in a similar situation, when many of the country’s large pharmaceutical companies are taken over by foreign companies and are fleecing consumers by increasing prices of drugs, nobody is there to check them, as consumers are not organised. Clearly, if the country’s aviation sector falls into the hands foreign companies, consumers may be subject to similar exploitation.
For making air travel cheap, it is necessary to promote competition in the aviation sector in the country. Presently, private airlines are increasing airfares by colluding with each other, making air travel expensive. Delhi - Mumbai minimum airfare, which had bottomed at Rs 3,000, has exceeded Rs 7,000 now. Nevertheless, government must correct its aviation turbine fuel (ATF) price policy to help domestic airlines, as they are suffering from unduly high price of ATF. However, allowing foreign investment in this sector on the pretext of saving aviation companies from losses would be a retrograde step, as this step would act against the commoners’ dream of cheap air travel.