Let a pvt entity run Air India

THE flash strike by pilots of Air India has brought the airline back into national focus and once again for all the wrong reasons.

The tendency of Air India pilots to go on flash strike is an old one which has been allowed to become a habit as no strict action has ever been taken against them. This time the pilots of erstwhile Air India have gone on strike over training for the 29 new Dreamliner Boeing aircraft awaiting delivery as they do not want erstwhile Indian Airlines pilots to go through the same. While pilots the world over are a highly paid but unionised group prone to striking, Air India pilots take the cake as they have been declared ‘ workmen’ under the Workmen’s Compensation Act by court order.

Therefore, despite working on one of the highest paid jobs they enjoy the advantages of being workmen. Story The strike has been declared illegal and 26 pilots have been dismissed for the first time. How long this show of bravado from the government will last is anybody’s guess. Grapewine says the last time they went on a similar strike the Ministry of Civil Aviation proposed strong action, seeking to close down the airline temporarily but was not permitted by the PMO. Does this not sound logical in view of the fact that the Prime Minister, in an address to the nation from the ramparts of the Red Fort, has given an assurance that Air India would not be allowed to sink or close down? The result is there for everyone to see. Government coffers have been opened up for the airline, with a bailout package of Rs 30,000 crore over 9 years, Rs 4,700 crore of non- convertible debentures which are likely to be subscribed by government owned financial institutions and permission to go in for low cost external borrowings to the tune of $ 300 million ( over Rs 1500 crore). Already, Rs 3,200 crore of equity infusion has been done along with Rs 6,750 crore of working capital loan.

Will all this bring Air India back into the pink? Why did the merger of the two airlines done over four years back fail? These questions need to be examined to determine whether the existing government machinery has the will and capacity to turn around the ailing airline which was once a proud mascot of India.

To answer these questions we need to examine a bit of the past. A proposal to divest Air India was mooted in 2000 and by September 2001 it was a done deal in favour of a joint venture between the Tatas and Singapore Airlines with full support of all the Air India unions. However, two weeks before 9/ 11 took place in 2001, Singapore Airlines withdrew from the joint venture for reasons not disclosed though it is likely that they could not stomach Indian politics. Even as the Tatas were asked to look for another partner, 9/ 11 happened and no airline came forward to join the joint venture.

However, the point to note is that at that time the seven odd unions had joined hands to welcome privatisation — an unusual stand for unions to take— as they felt that their future was better off with the airline in private hands, notwithstanding the advantages of a secure government job. Therefore, they took a progressive stand. However, the decision to not privatise Air India and the subsequent one to merge it with Indian Airlines was not taken with their approval and shook the optimism of the unions which relapsed into their former trade union mindset.

The fact that an inspired merger from the top turned out to be a disaster is well documented. Not taking the pains to see through the merger, which requires a lot of delicate work, especially where many unions are involved, appears to be the main reason for the failure of the exercise.

Frequent changes in the top management was a signal that all was not well. Mismanagement and backseat driving without taking responsibility for decisions gone wrong at the top level have led to this disaster. 

Parallels: 

The turnaround of a sick company by highly recognised professionals has already occurred recently in India in the case of Satyam. Similarly, Japan Airlines was in deeper trouble than Air India but was turned around in a few years with a bailout package and is already making profit. In the US, financial failure gets resolved much quicker than elsewhere. The example of General Motors and Chrysler Motors which were turned around in about 40 days after filing for bankruptcy in 2009 highlights what quick decision making and close monitoring can do. Ford Motors refused a bailout and worked aggressively in foreign markets, emerging triumphant and regaining their investment grade rating. Air India, on the other hand, resisted an offer of help from the Board for Reconstruction of Public Enterprises on the ground that the company was less than three years old ( as a merged entity) and therefore beyond the scope of the Board’s assistance.

Solution

It, therefore, does appear that the government is lacking in commitment to change Air India’s fortunes. It is significant that notwithstanding the government largess, no major step has been taken to form a team, like was done in the case of Satyam, to turn the airline around. Under these circumstances where the government has not done anything significant other than pumping in taxpayers’ money into the airline, the only answer would be to hand it over to a private management as was done by Sri Lankan Airlines. They handed over the management of the government owned airline to Emirates Airline for a few years. The latter turned it around and have since handed back the management to the government of Sri Lanka.

The writer is Chairman of International Foundation of Aviation, Aerospace and Development ( India Chapter)

Jet faces big test in first brush with union trouble

For the first time in its 16-year history, Jet Airways (India) Ltd has found itself in a confrontation with unionized workers that analysts warn could potentially upset an ambitious restructuring plan and make it difficult for management to trim the airline’s 13,000-strong workforce in the future.
Jet, India’s largest airline by market value, has had an association of pilots called the Society for Welfare of Indian Pilots, or SWIP, to redress employee complaints since 1998, but unlike state-owned Air India, with 12 recognized unions swearing affiliations to political parties ranging from the right-wing Shiv Sena to the Left, it has never faced worker unrest or a strike threat. Until last week.

On 24 August, Jet Airways management received a 14-day legal notice from the airline’s newly formed pilots’ grouping, National Aviators Guild, or NAG, that all member pilots would begin a strike starting 7 September unless the Mumbai-based carrier reinstated two sacked pilots.

NAG, registered on 24 July, claims 650 members. It says the two pilots were terminated from employment because they were instrumental in forming the union, the first pilots’ association at a private Indian airline, which has not been recognized by Jet Airways management. Jet Airways and its wholly owned subsidiary JetLite have a total of 1,069 pilots on their rolls.

“It’s very sad that we have to take a step like this,” said NAG president Girish Kaushik. “I love the airline. It’s the most professional airline people will vouch for (it), and we want to keep it that way, but if two people are sacked without reason, it’s not acceptable. It takes years to become a professional pilot, how can you sack them like a daily wage labourer?” Jet, which operates at least 449 flights daily with a fleet of 107 aircraft, in May announced a “comprehensive cost restructuring” strategy which included a withdrawal from uneconomic routes, leasing out of wide-body aircraft to West Asian carriers, a freeze on hiring, temporary reduction of management pay and pruning of executive perks. The airline also said it would close international crew bases “and as a last but necessary measure” trim any excess workforce.

“If management has a free hand, then restructuring becomes an easy exercise. When they (employees) form a union, as a body their views cannot be ignored. The process becomes that much more complex,” said M.S. Balakrishnan, a former director of finance and board member of Indian Airlines (now Air India) who dealt with unions in his tenure before retiring in 2007.

Every time Jet has tried to sack employees, it has faced stiff resistance. In October it announced the sacking of 1,900 staff. The employees took to the streets and television images of the protests brought political intervention to end the standoff. Founder chairman Naresh Goyal went on television to say he was taking everyone back because he understood the “agony” they must have gone through.

“I can imagine because I started my career when I was 18, everybody knows I used to get Rs300 a month salary. I couldn’t sometimes get a meal. I can imagine what you (employees) must have gone through,” he said. The sackings were based on the economics of running an airline, he said, but he wanted to “go beyond numbers, figures and money”.

The numbers have not been on Jet’s side for some time. While it posted a profit for four of the seven fiscal years it has been listed on the Bombay Stock Exchange, the airline has been in the red since its takeover of erstwhile Air Sahara (now JetLite) in 2007. In the last fiscal, Jet lost Rs961.41 crore, 47.03% higher than in 2007-08, as it struggled with high operating costs, excess capacity and competition.

Jet started scheduled operations in 1993. SWIP, which claims the support of 790 Jet pilots on its website, was formed in 1998 with the “purpose of interfacing with the management to ensure a smooth and seamless operation of our airline”, and was meant to be “non-interfering and non-involving with the other departments”. NAG is different. It has the mandate to do what Kaushik terms “thought boxing”.
“Now, the SWIP is not a union at all. With this you cannot make an agreement (like on wages), you can’t sign anything. They don’t have a legal authority to do so,” Kaushik, who has 20,000 flying hours of experience, said. “The airline has told us in the past, ‘we don’t even need to speak with you’ (SWIP). This encouraged us to have a guild. It’s just to protect our interests.”

The next step for NAG is to become a member of the International Federation of Airline Pilots’ Associations a global pilots’ body representing at least 100,000 pilots in some 100 countries.

A senior SWIP member, who asked not to be named because he is not authorized to speak with the media, said a decision whether to dissolve the association will be taken over time. Jet Airways pilots need a union to protect their interests at a time when the aviation industry is trying to weather tough times, he said.

“SWIP is a welfare association representing the airline’s pilots and is recognized by the management of Jet Airways,” a Jet Airways spokeswoman said in reply to a Mint questionnaire. “For several years now, the management has held regular discussions with SWIP on various concerns and issues of interest to SWIP members and these discussions have also been the forum for redressal of grievances.”

Jet Airways has approached the regional labour commissioner in Mumbai for conciliation. On 27 August, the office of the deputy labour commissioner, central, under the ministry of labour and employment, said NAG cannot go on strike while conciliation proceedings are under way. Kaushik said the “strike was on” still and NAG will decide which way to lean after talks scheduled for Monday.

Analysts link the formation of the union to insecurity among employees stemming from the economic downturn and its impact on airlines. “They (employees) all felt that nothing could (go) wrong with Jet (for many years). They were riding high. But last year when Jet went into a tailspin, it put some insecurity in them,” said A. Ranganathan, an air safety consultant and a former general secretary of the erstwhile Indian Airlines’s pilots union, the Indian Commercial Pilots Association. “When you have a downturn and insecurity they know only a union can protect them.”

Jet’s employee base has more than doubled from 6,608 in 2004 to 13,078 as of March 2009, including several 160 expat pilots, and foreign executive hires at its international offices.

The restructuring exercise and possible job cuts may have been the trigger for Jet pilots to unionize, said another analyst.

“Most global companies have extremely strong unions. When you have such a large company...you expect that there would be unions,” said Kapil Kaul, India chief executive of consulting firm Centre for Asia Pacific Aviation. “Companies will have to deal with unions. Tomorrow you will have wage agreements with them.”

“For the employees, a union would offer a negotiating platform to bargain with the management on issues such as working conditions and career progression,” said Ranganathan.

Lalit Bhasin, a Supreme Court advocate and president of Society of Indian Law Firms, a grouping of the country’s top law firms, agrees. “The formation of (a) trade union is a welcome move as it leads to collective bargaining on the part of its members and gives them a sense of security,” he said.
But unions are also known to make aircraft lessors and insurance firms insecure because of concerns about possible sabotage. In the early 1990s, for example, leasing firms used to demand political risk insurance when leasing assets such as aircraft to airlines in India.

Kaul said he does not see leasing firms and insurance firms being wary of India now, given the country is an important market for them. “Most leasing firms deal with strong union cultures. The question appears only if there is a repeated labour dispute history of the airline. It maybe a factor but not an overwhelming factor,” he said. G.R. Gopinath, who started India’s first domestic low-cost airline, the erstwhile Air Deccan in 2003, said that unions gradually tend to become affiliated with some or the other political organization and invariably their leaders get into “power play and corruption”.

Kaushik says he is not keen to seek political backing. “So far as I am concerned we are not going for political affiliation. It’s going to mess up the whole airline, I am not for it. But my view is not the only one.” For now, NAG only wants the two sacked pilots to be reinstated. “My only agenda is to get the boys on board, we don’t want more salary or privileges. We will talk about other things later on.” Strike threat by newly formed pilots’ grouping may hurt the struggling carrier’s ambitious restructuring plans

400 Jet pilots go on sick leave
BS Reporter / New Delhi September 08, 2009, 1:15 IST

Around 400 Jet Airways pilots went on sick leave late Monday night. The decision was taken at a meeting of the National Aviators Guild (NAG) — a recently formed Jet Airways pilots’ union. The decision would come as a setback to the private airline, especially since NAG had earlier in the day called off their proposed strike from midnight of September 7.

The reason the strike was called off was that the conciliation meeting with the management was still on. Going ahead with the strike once the conciliatory procedure is on is illegal. However, during the day itself, pilots who are part of the guild said they would go ahead and protest in different ways, like going on leave. The union, which has the support of over 650 pilots, had called for an indefinite strike from the midnight of September 7. “We have called off the strike, as it will be illegal to go ahead with it. But our pilots are saying that they will hamper the services of the airline in different ways,” an NAG representative said. Later on, after midnight, the representative confirmed that around 400 pilots had gone on sick leave.

The Jet Airways spokesperson could not be contacted. Earlier in the day, the airline had maintained that it would “...follow the due process as indicated by the labour commissioner.”

The NAG is demanding the reinstatement of two pilots — Sam Thomas and G Balaraman — who, according to the guild, were terminated from services without any specific reason. The matter was referred to the labour commissioner who heard both the sides on August 31 and called them again on September 14.

Financial Express -- Jet pilots go on mass CL, operations hit
Agencies 
Posted: Tuesday, Sep 08, 2009 at 1234 hrs IST
Updated: Tuesday, Sep 08, 2009 at 1234 hrs IST

Mumbai: Jet Airways cancelled 115 flights scheduled for the day in view of its pilots going on mass casual leave to protest sacking of their two colleagues. 
"We have decided to cancel 115 flights of our total 345 flights in the day in view of pilots going on mass casual leave," Jet Airways spokesperson said. 

Last month, the airline had sacked two of its seniormost pilots Captain Sam Thomas and Captain Balaraman saying their services were not required after they, along with other pilots, formed a trade union body, National Aviators Guild. 

The union gave a strike call on September 7 to protest the sacking.  The issue was referred to the Regional Labour Commissioner for conciliation.  The commissioner conducted the first conciliation proceedings between the management and union on August 31 and advised both the parties to adhere to the Industrial Dispute Act of 1947. It said that since the matter was under conciliation, Jet pilots were legally bound to not to go on a strike. Though the pilots withdrew the strike call yesterday as a part of their strategy, they decided to go on mass casual leave. 

The Guild claims representation of 645 pilots of the total over 1000 pilots in Jet Airways. 
Financial Express -- Jet strike: govt may invoke Esma
Posted: Wednesday, Sep 09, 2009 at 0101 hrs IST
Updated: Wednesday, Sep 09, 2009 at 0101 hrs IS

Mumbai: Flight schedules across the country were severely disrupted as almost half the 760 pilots belonging to Jet Airways took mass sick leave and struck work on Tuesday in protest against the sacking of two of their colleagues. 

By evening, the company had sacked three more pilots, even as their representatives were huddled in a meeting with director general of civil aviation Nasim Zaidi to explain their position. The home ministry has threatened to use sections of the Essential Services Maintenance Act to force pilots back to work, even as the standoff is expected to continue into Wednesday. 

As a result of the action, India’s largest airline by marketshare said 186 of its flights were cancelled, including 32 international flights, affecting 13,000 passengers. The airline scrambled to combine some flights and accommodate passengers on other carriers to counter what a Jet spokesman described as “an organised and planned sabotage of operations”. Civil aviation ministry secretary Madhavan Nambiar said Jet has been told to ensure full refund to passengers whose flights were cancelled. “We have directed (Jet’s) management to talk to the agitating pilots and put in place a mechanism to ensure such strikes are resolved timely in the future,” he added. Jet Airways chairman Naresh Goyal met Nambiar and Zaidi twice on Tuesday to brief them on steps being taken to deal with the crisis. 

The airline, which reported a loss of Rs 225 crore for the first quarter of the current financial year, is estimated to have lost over Rs 10 crore on Tuesday owing to the cancellation of flights. Jet has a fleet of 107 aircraft flying to 449 destinations daily. Up to noon, only a quarter of these flights operated normally, a Jet Airways statement said. The agitating pilots, who belong to the recently formed National Aviators’ Guild (NAG), are protesting the sacking of colleagues for their alleged role in forming the new union. The airline, however, has refused to acknowledge the demands. 
“The pilots resorted to a simulated strike by reporting sick. Since 10 pm last night, a total of 163 captains and 198 first officers reported sick, disrupting the flight schedule and causing inconvenience to the travelling public,” the company said.  Jet Airways has also threatened appropriate action on obtaining a high court order restraining NAG and its members from resorting to industrial action. Pilots also opted for mass sick leave instead of a formal strike fearing action by the regional labour commissioner, who has such action illegal under the Industrial Disputes Act. Jet Airways’ shares ended Tuesday at Rs 262, up 2.64%, on the BSE as a resolution to the crisis seemed close at hand. 

Financial Express -- Jet sets up crisis centre, keeping fliers updated
Agencies 
Posted: Wednesday, Sep 09, 2009 at 1509 hrs IST
Updated: Wednesday, Sep 09, 2009 at 1509 hrs IST
Mumbai: Jet Airways on Wednesday said it was making all efforts to ensure that the passengers do not face inconvenience due to the protest by the airline pilots that has disrupted its domestic and international operations.  Jet Airways Chief Commercial Officer Sudheer Raghavan said the airline has re-accommodated 80 per cent of its stranded passengers on flights of other airlines, while they have “readily” refunded the airfare of the remaining ones. 

“We have set up a crisis centre and are updating our website on a real time basis. We are also sending SMS updates informing them which flights are operational and which have been cancelled, so that passengers don’t have to come to the airport and face inconvenience,” Raghavan said. 
Over 350 pilots of the Naresh Goyal-led airline went on mass sick leave since yesterday protesting the sacking of two senior pilots in July.  About 186 flights, both domestic and international, were cancelled yesterday, while Jet has so far called off 153 flights for today.  “We are sorry that some of our passengers have had to face trouble. It has been a surprise spring on us without any early warning,” Raghavan said. 
About 13,000 passengers were yesterday left stranded at various airports across the country, the worst affected being Mumbai airport. 

Jet Airways Chairman, Naresh Goyal, has appealed to the pilots to resolve the matter amicably and return to work.  

Financial Express -- Jet extends olive branch, open for talks with pilots
Agencies 
Posted: Wednesday, Sep 09, 2009 at 2025 hrs IST
Updated: Wednesday, Sep 09, 2009 at 2025 hrs IST

Mumbai: Jet Airways on Wednesday said its doors were open for talks with the agitating pilots who continued to stay away from duty crippling the airline's services for the second day. 
"Doors are open... we will be sitting together," Jet Airways Chief Commercial Officer Sudheer Raghavan told reporters here. Asked if it was true that the two pilots sacked last month were not given any valid reason for the management's action, he said Jet had "not gone out of the legal framework." 
The sacking of the two pilots for allegedly trying to form an union sparked off an agitation that paralysed the airline's domestic and international flights since Tuesday. About 400 domestic and international flights of Jet Airways have been cancelled in the last two days resulting in over 14,000 passengers being stranded at various airports. Raghavan said the airline's domestic bookings had plummeted to 14,000 per day from 23,000 on normal days, in the wake of its pilots going on a mass sick leave. 
However, the impact on the international bookings was less as the company retained 9,500 bookings against 10,500 it has on normal days. "We are able to carry 50 per cent of our passengers on Jet Airways and JetLite flights, while the remaining are being transferred to other airlines," Raghavan said. 
Fares soar as airlines chip in to help Jet

BS Reporter / New Delhi September 10, 2009, 0:07 IST

The second day of the Jet Airways pilot protest saw the Bombay High Court issuing a contempt notice to pilots, fares soar and the airline industry putting its support behind the airline's management by taking up the slack of the 250 flights (above 500 domestic and international) that were grounded today after more than 400 pilots took mass sick leave for the second day in protest against two pilots sacked last month and three yesterday A release from the airline said the the Bombay High Court issued a notice to the National Aviator’s Guild (NAG) and its office bearers and made the matter returnable on September 14.Meanwhile, the pilots of the NAG, which has 650 members out of Jet’s 704 pilots (another 164 are expats and are not part of this protest), also declared that they were willing to talk to the management to resolve the issue. “Once Mr Goyal meets us, I am sure he will be able to understand our problems,” NAG joint secretary Captain Sam Thomas told reporters.
 
But late night talks between the Jet management and pilots ended in a stalemate.
In a day of hectic developments, Jet Airways Chairman Naresh Goyal met Civil Aviation Minister Praful Patel, and also worked out a plan to reduce inconvenience to passengers. “On normal days, we fly 23,000 passengers. As of today we have 14,000 passengers booked, of which 50 per cent would be boarded on JetLite and Jet Airways flights and the rest were accommodated with other airlines,” said Hamid Ali chief operating officer of Jet Airways, which is India’s largest airline.Airlines like Air India, Kingfisher, IndiGo and SpiceJet are picking up Jet passengers from grounded flights and the airline has also worked out inter-airline payment adjustments so that passengers do not have to pay extra for flights redirected to other airlines.

Fares available on the net, however, shot up 50 to 100 per cent during peak hours owing to the sudden reduction of capacity due to cancelled flights. “Except for Air India, low-cost carriers have raised fares 50 per cent and full-service carriers by around 100 per cent,” confirmed Mohit Srivastava, head of online sales, MakemyTrip.com, an online portal. On a Delhi-Bangalore route, Kingfisher normally charges Rs 6,000 (one way). The fare today rose to Rs 12,500. Low-cost carriers have upped Delhi-Bangalore ticket prices from Rs 3,000 to Rs 4,500, according to makemytrip data (see table).

Sources in Kingfisher admitted that the Vijay Mallya-owned airline was getting 100 per cent passenger load factor (PLF) in the business class currently instead of the average of 50 per cent. Air India saw passenger load factor increase from 60 per cent to 74 per cent today.

Significantly, both full-service and low-cost carriers have strongly supported Goyal.
“We cannot tolerate labour terrorism by employees who get salaries above Rs 4 lakh a month,” said a senior executive of a leading private airline, adding, “Also, at a time of recession for the industry we are concerned that the pilots’ attitude might spread to other airlines too. At this moment everyone has to make sacrifices.”

“Goyal has not budged an inch and that is the right way. We fully support his moves. I don’t see the pilots getting support from any other employees who distrust them,” added a CEO of a low-cost carrier.
NAG’s Thomas, however, made it clear that the mass leave move will continue till their demands of reinstating all the pilots sacked is met. Jet Airways has a 26.3 per cent — 18.9 per cent of Jet Airways and 7.4 per cent of JetLite — share of the domestic passenger market that carries 100,000 passengers a day.

Mint -- Jet, pilots fail to break impasse
B Y P .R . S ANJAI, Sept 10
MUMBAI
India's largest carrier by market value Jet Airway (India) Ltd cancelled about half its flights for a second day on Wednesday, as pilots failed to reach a compromise with the management on ending a dispute that sparked an undeclared strike, with aviators going on sick leave en masse. Flights are set to be cancelled on Thursday as well amid the crisis that's causing daily losses of about $4 million (Rs19.4 crore). Other airlines benefited, with some same-day fares registering a sharp increase.
The Bombay high court issued a contempt notice to the pilots' union of Jet Airways for continuing the strike despite a retraining order issued on Tuesday.

The carrier's domestic bookings dropped to 14,000 from 23,000, while international bookings fell by 1,000 from 10,500. On Wednesday, Jet Airways cancelled 32 international flights and 134 domestic flights after 432 pilots out of a total 760 reported sick.

Although the management and the National Aviators' Guild (NAG) have said they are open to talks, no formal discussions have been scheduled nor has a time frame been set to resolve the dispute.
"This will have far-reaching repercussions" for Jet's finances, said a senior executive at the airline on condition of anonymity. "It will not be able to pay salaries in September on time if the strike continues.
This will also have an impact on payments to vendors." Chief operating officer Hameed Ali said pilots will have to furnish a medical certificate to extend sick leave beyond 48 hours. Pilot Suhail Jain was fired on Tuesday for refusing to let Jet's doctors examine him at his residence.

Mint could not immediately independently confirm whether the firing was legal. Under the terms of conciliation talks undertaken by the labour commissioner's office, the airline cannot fire anyone until negotiations are concluded.

NAG president Girish Kaushik and Jet Airways founder-chairman Naresh Goyal are in New Delhi, meeting officials as the stir intensifies. Kaushik is trying to gain support from political parties and other unions while Goyal is asking the government to intervene by invoking the Essential Services Maintenance Act, according to a person close to the development, who declined to be named. "We are talking to pilots to find an amicable solution to this issue. We are ready to listen and our doors are open," Ali said.
The airline didn't say if it had a strategy in place for dealing with the continuation of the dispute. "The situation is extremely fluid and we will dynamically address challenges," said chief commercial officer Sudheer Raghavan. "We have opened a crisis centre to disseminate information to customers as fast as possible.

We are sending out SMSes and accommodating passengers on other flights." He said Jet has prepared a contingency plan, to be reviewed every hour based on the number of pilots reporting for work.
NAG joint secretary Sam Thomas said the union had not received any communication for talks to resolve the issue.

"Our demand is just to reinstate the retrenched pilots. For that we are ready to fight as long as it takes."
Thomas is one of two pilots--the other is D. Balaraman--fired in August for forming the union, the immediate trigger for the current standoff. Both claim the management has not given them any reason for the retrenchment.

Raghavan said his airline is willing to sit across the table and talk but "pilots cannot blackmail the carrier by resorting to such a mass leave".

Pilots of JetLite (India) Ltd, the low-fare carrier of Jet Airways, have not joined the labour action. That may change, Thomas said. "In spirit, JetLite pilots have said that they will support us," he said. "We have got feelers from others unions in Jet Airways including cabin crew and ground staff." The dispute stems from the better treatment of foreign pilots, Jain said. "We were always willing to take a pay cut, but all that we want is it should be equal across the board," said Thomas, adding that Indian pilots took a pay cut in December. "Expat pilots are enjoying all benefits while we were asked to take a pay cut.
We need to be first-class citizens, at least in our country." Jet pilots formed an association in 1998 to look into issues such as salaries, allowances and flying hours. It was not a labour union and Jet Airways had signed at least two wage agreements with it. Later, Jet Airways refused to negotiate with it, leading to the formation of NAG in July. PTI contributed to this story. 

Is bureaucratic muddle killing the Delhi international airport?

March 21, 2012

There have been reports that Delhi International Airport Limited (DIAL) has sought a nine-fold increase in airport tariff while AERA, the regulator, has agreed to only about four-fold. The airlines are worried about the increase in tariff. Foreign airlines have also threatened to pull out of India if charges go up very much. Meanwhile, DIAL has announced that they are suffering a loss of over Rs 2 crore per day. At the same time, Airports Council International has declared Delhi airport as the second best in the world in its category and sixth best amongst all airports. After the disastrous results of the airline sector, are we heading for a repeat performance in the airport sector also? 

Taking Delhi airport privatisation process for example, it may be stated that it started in 1999-2000 and came into effect on May 3, 2006 in favour of  DIAL. This was a 30 year concession popularly called Public Private Partnership (PPP) with 45.99 per cent of gross revenues going to Airports Authority of India (AAI ), with the owner required to pay heavy penalties for delayed payment. DIAL was asked to go ahead and construct a world class airport with a new terminal and upgrade existing terminals, which it did within the stipulated period.



Aeronautical charges form the revenue base of any airport. The state support agreement (SSA ) signed between the ministry of civil aviation (MOCA) and DIAL provided for tariff fixation and clearly stated that an Economic Regulator for Airports (AERA) would be in place, as far as possible, in two years’ time from effective date i.e. by May 2008 and would fix the aero tariff after due examination. It also  provided for a 10 per cent increase in aeronautical charges in two years from May 2008 and regular annual increases with commencement of fourth years. and every year thereafter for remainder of the term.


A minimum of 10 per cent increase on year-on-year basis was also stipulated. None of this was followed. A nominal10 per cent increase was given for all airports in 2009 (after the last increase in 2001) and no increase thereafter has been given to DIAL as yet. AERA cannot be blamed for the delay as it was a newly created organisation without rules or guidelines and it was the unrealistic assumption of the government that it will be able to do so. AERA introduced the concept of a five year control period for calculating  aero charges and based it, correctly, on various factors including passenger traffic projections.



The first control period was, however, fixed as May 2009 to May 2014 of which nearly three years have already passed. Though maximum investment was made by the DIAL in the first two years of control period, no increase in tariff has been allowed. The economics of a concession like airport, road or bridge goes haywire if increases are not given in time. Had the ad hoc increase come in say 2008 followed by a regular increase by April 2010, things would have been different as DIAL would have paid off or retired part of its debt/ interest burden. This amounts to a default by the government which should be compensated.



Differences of opinion



Further, there are differences of opinion between AERA and DIAL on three counts. First, concessionaire has sought a return of 24 per cent on cost of equity invested while AERA has give only 16 per cent. A return of 16 per cent on the capital deployed may not be attractive for a long term gestation infrastructure project like airports. SBI Capital Markets Ltd, a subsidiary of State Bank of India has reportedly stated that the return to investors in airports should be 18.5 to 20.5 per cent. Standard and Poor’s Financial Services have also backed DIAL’s demand.

  Second, DIAL has received nearly Rs 1,500 crore as refundable interest free deposit from the concessions it has given,in turn, for commercial development which is outside AERA’s calculation for aero charges. The third difference is the projected passenger growth. While AERA has done a simple analysis of growth based on last five years with 2008 as base and given 17.6 per cent growth for the next two years, DIAL has produced a study from Madras School of Economics giving 10.2 per cent growth based on current economic crisis. The claim of the concessionaire is supported by ICAO and ACI forecasts. All these issues need reconciliation.

Lastly, the issue of 45.99 per cent revenue share going as rent to AAI needs to be looked into for future. This kind of bidding is reminiscent of telecom auctions of Sukhram days and becomes a spoiler in the game. With 46 per cent of gross revenue going to AAI, it leaves DIAL only 54 per cent to meet all the costs of loans repayment, operating costs and payment of dividend.



Had AERA or MOCA given the increases in aeronautical charges in due time as per SSA in 2008 and thereafter, there would not have been such a high demand from DIAL today. In these circumstances it may be prudent and desirable to spread out the payment of 46 per cent revenue to AAI over the next ten years or so which will give DIAL some relief without vitiating its contractual obligations.

It is, therefore, felt that the government is creating yet another mess in the privatised airport sector. In PPP contracting, while there are strict and legally binding clauses and penalties on the concessionaire, for the government, there are none.

(The writer is chairman of International Foundation of Aviation, Aerospace and Development)

Indian aviation: Still flying dangerously

The airlines have to have their own safety manuals and proce-dures which is called ‘line maintenance’. 
Aviation worldwide is the safest form of transportation. This is so because the international regulator and aviation law maker, International Civil Aviation Organisation (ICAO), has evolved over the years an excellent framework of rules and regulation for aviation safety called standards and recommended practices as well as procedures and guidelines. Further, the ICAO conducts safety audits of each country.


However, with the recent announcement by Director General of Civil Aviation with regard to the deteriorating financial position of some of our airlines, the issue of their safety has again come into focus. It may be stated that while there is no provision in the Aircraft Act or its Rules to conduct such an audit, however, having conducted it and found it wanting we need to consider the situation in its entirety.



Fastest growth 
Having said that, we need to look at our own record to see how we are faring. There is no doubt that Indian aviation has had the fastest growth in the last two decades. The massive growth in passenger traffic, number of aircraft, number of landings in metro airports, congestion in the air brings in their own problems. Have we managed to keep up with this? In this sector there are three parties that need to be scrutinised. These is the regulator -- in our context the DGCA -- the airlines who need to maintain their planes and the airports, including air traffic management. An examination will prove that all three of them have been inadequate to keep up with the growth.

It was only about two years back that the US Federal Aviation Authority (FAA) informed India of its intention to downgrade it in its safety from Category I to II, which means India joins the rank of some small African countries. An ICAO report on India’s safety audit also left much to be desired. As a result of hectic activities by the civil aviation ministry, the FAA was persuaded not to downgrade Indian safety and at the prime minister’s level about 400  technical posts were created in one go of which only about 10 per cent have filled up as yet . This means that the inspection staff of DGCA is woefully inadequate even now.



We now come to the issue of airports. The airports in the top four metro cities of Delhi, Mumbai, Chennai and Bangalore take about 80 per cent of the traffic. But traffic management remains outdated and not as per ICAO standards/recommended practices. We still don’t have a flow management system and our radars between metro cities do not provide seamless connectivity. As a result aircraft have to circle around these airports during peak time before landing permission is given. This also involves safety risks.

Lastly, we come to safety precautions conducted by the airlines. The airlines have to have their own safety manuals and procedure which is called ‘line maintenance’. The DGCA is supposed to check them at random and also by a schedule. Inadequacy or carelessness by airlines is what the DGCA inspectors are to check and are empowered to issue notices. However, with shortage of technical staff with DGCA, it is left more to Airlines to conduct its own safety checks. While it is equally important for airlines to maintain its safety requirements, however, whenever airlines go into a financial trouble there is always the possibility of safety being compromised to cut corners. But this cannot be generalised leading to a panic amongst the public.

The state of affairs in the countries airlines and the DGCA need to be examined. Besides shortage of staff there are cases of collusion and corrupt practices in various aspects of DGCA functioning which impinge upon safety. The recent cases of fraudulent issue of licenses by DGCA office or failure to pass alcohol test by pilots in many instances show the current level of callousness, collusion and corruption which impact safety. While attempts are being made to improve the system by the Ministry and DGCA, without adequate technical support this will be difficult. To add to these growing losses of some airlines will add to the issues of aviation safety. It is therefore, necessary at this stage to look into all these aspects, take steps to bring aviation industry to financial healthy state by rationalising the tax structure, fill up the technical vacancies in the office of DGCA and solve the issues pertaining to air traffic management. A new minister has taken over as a full time charge. He needs to look into all these aspects without any delay.

(The writer is chairman of International Foundation of Aviation, Aerospace and Development, India Chapter)

For some time, India hasn't filled aviation safety post

WHILE it would be improper to hazard a guess for the reason for the recent air crash in Mangalore on May 22, and we should wait for the inquiry report, it is time to review the capacity and quality of our air safety surveillance. This major airline crash took place about 10 years after the Patna crash of what was then Indian Airlines. During this time our record has been relatively accident-free. However, with a major growth in air traffic during this period, there have been informal reports of many "near-misses"; such incidents generally go unrecorded. The last such took place in Mumbai on May 27.

The International Civil Aviation Organisation has the responsibility for international surveillance of each country's safety practices, as well as the mandate to harmonise them. It also does a safety audit of all its member countries (practically every UN member). The audit programme was started on January 1, 1999 and has since audited all countries. Its report on India in 2006 was hardly good. Out of the eight "critical element" categories, it gave India 9 out of 10 marks in licensing and certification; 8 in specific operating regulations; 7 in surveillance obligations; and 6 each in primary aviation legislation and technical guidance and tools.


However, it gave only 5 out of 10 for resolution of safety concerns; 4 out of 10 for the state civil aviation system and its safety oversight function; and an abysmal 2 out of 10 for technical personnel qualification and training. While the report could be considered below average, especially with regards to technical personnel, it was the US's Federal Aviation Authority which first took up cudgels with India's civil aviation ministry in 2008-09 when it threat ened to downgrade India from Category 1 to 2 in their system; they categorise countries based on their safety surveillance parameters. With a large number of vacant safety-related posts in spite of a huge increase in traffic, the condition of India's safety surveillance system was unacceptable to them.

It is unfortunate that things were allowed to deteriorate in India so much. Finally it was prime ministerial intervention which put our house in order; he ordered the revival of lapsed posts which had not been routinely filled up, and the creation of new safety-related posts. A very large number of technical posts have since been created but it is difficult to fill them up -due to an unattractive salary package and an excruciatingly painful and slow recruitment process followed by the Union Public Service Commission.

Neglecting safety issues in the face of increasing air traffic invites trouble. Adding to this is the highly competitive environment in which airlines are working. If we look at the financial position of airlines in general we can see that they have deteriorated over the years. From the 9/11 incident to the financial crisis, with swine flu and H1N1 in between, world air traffic has had something of a roller-coaster ride.
In India, the impact of all this has been felt on both the domestic and international fronts. Most of India's airlines are in the red.

While airlines might say that safety is as much a concern of theirs as that of passengers and government, cutting corners in times of deep financial crisis cannot be ruled out. In this connection a recent proposal by the DGCA to monitor finances from a safety perspective is a welcome move.
According to this draft proposal, there is a need to carry out the "evaluation of air carrier's management of significant changes to identify airlines in distress either due to financial issues or operational issues, so as to ensure that safety oversight functions are not affected and also to pin-point changes in the operating environment conditions, which significantly alter the balance between resources and operations." It is heartening to see that the DGCA has taken note of the precarious finances of the airline industry where many of them are unable to pay even fuel or airport charges. It has, therefore, called for an "examination of any condition that may indicate a significant deterioration in the operator's financial condition." In some cases in recent times aircraft on lease by our airlines have been recalled by their owners for nonpayment of lease charges. Under these circumstances, the DGCA's draft proposal is very welcome.

The writer is chairman, The International Foundation of Aviation, Aerospace and Development. He is based in Delhi express@expressindia.com A very large number of technical posts have since been created but it is difficult to fill them up, due to an unattractive salary package and the excruciatingly painful UPSC process.

How Indian airlines took off

2010-09-09
After getting nationalised in the fifties, private domestic airlines began re-emerging in India in the nineties. The popularity of the new private airlines went up fast as they provided better service and on-time performance with new aircraft. Then the concept of low-cost carriers (LCCs) was introduced and it found great acceptability. By the late nineties, LCCs had evolved from being marginal players in the market to occupy a dominant space, with their share of passenger traffic overtaking the full service airlines. The DGCA of India also did away with price control of tickets. A liberalised domestic market offered flexible pricing of tickets. Since airline seats became perishable like vegetables,ticket prices started varying from day to day and hour to hour. Internet sales helped.

This brought in a social revolution that was second only to the telecom one—wherein cheap cellular phones became a social and business necessity—in terms of impact. With airline tickets hitting bottom, the middle class discovered new freedoms—to travel for business and pleasure by air. The profile of air travellers was transformed. An experience largely restricted to government and corporate travellers opened out to students, housewives, self-employed small and medium entrepreneurs. New demographics were won over by LCCs’ charms.

The next advance took place at the start of this century, when private airlines were permitted to fly abroad—albeit with the unnecessary condition that it would take domestic airlines five years to qualify for foreign operations. Nonetheless, Indian airlines are now beginning to compete with the best in the world. Meanwhile, our airports were in a shabby condition and needed a lot of improvement. Kerala took the lead in 2000, coming up with a brand new airport in Cochin. Hyderabad and Bangalore followed suit. This was followed by the modernisation of Delhi and 

Mumbai airports through long-term concessions.Now that we have a reasonably modern civil aviation infrastructure in place—with large domestic traffic and good international connectivity—what should be our next step? To me, the obvious answer is to create an international hub in India. What exactly is a hub? A hub is a place where a large number of airlines meet from different destinations and exchange passengers. India is well-located in Asia, connecting Europe with Far-East and Australia. Unfortunately, since we did not have good airports nor did we encourage a liberal policy towards bilateral air service agreements (except in the last few years), we missed the opportunity that Singapore and Dubai exploited to emerge as key hubs in our region (although their own domestic traffic was negligible). We need to correct this mistake. How can we develop a hub? A hub requires a good, friendly airport where waiting and flight transfers are facilitated in a comfortable fashion. It also requires the city where it is located to be service efficient and tourist friendly. Post-Commonwealth Games, it is hoped that Delhi will show these attributes. The Heathrow airport in London has come up as a major hub as it developed into a great point of interchange—with the airport providing modern facilities even as the city of London provides a good space for a break. In the East, Singapore developed as a hub after it split with Malaysia. First, it developed an airline and then a hub. Similarly, Dubai decided to first develop an airline and then an airport.

In India, with the new T3 terminal in Delhi, there is scope for developing a hub. The Delhi airport has two parallel runways that provide growth potential and it is the busiest airport in India. Unfortunately, the existing Mumbai airport cannot grow due to limitations of land, and the fate of a second airport is in a limbo, thanks to Jairam Ramesh. It is now time for the government to take a concerted decision to develop an international hub in Delhi. For this, it will have to encourage more flights into Delhi even though our own airlines may seek to guard their turf. We also need to encourage bigger aircraft like Airbus 380 to land in Delhi to create the critical mass required to create a hub and compete with the likes of Singapore and Dubai. The creation of a hub requires a good airport (which we now have) and flights coming in from all directions, with both domestic and international connectivity. The advantages of developing a hub would be many. For example, a hub provides an increase in localised tourism and overnight stays; it provides an incentive to do business in the region. However, the state government of Delhi needs to play a more proactive role in airport hub development, as it will enhance the city’s brand value rather than just sitting back and taking undeserved credit.

The author is chairman of the International Foundation for Aviation and Development (India chapter)

Hit those near-misses

Air Safety issues can be divided into three sections: near-misses, incidents and accidents. Near-misses are cases where an accident is averted and generally goes unreported. Incidents are those that take place but are of a minor nature. While we are lucky we have not had many accidents in the last few years, the number of incidents and near-misses has gone up. This is because our safety oversight functions have been allowed to decay due to low priority given to safety.

Our aircraft rules contain provisions for notification, investigation and reporting of incidents. But our legislation does not provide for a much needed independent investigator of accidents as the Director General Civil Aviation (DGCA) is the designated investigative authority for them. For very serious accidents aircraft rules do confer upon the Civil Aviation Ministry to appoint an ad hoc entity, the ‘committee of inquiry or court of inquiry’. These, too, are assisted by DGCA officials.
However, all reports have to be submitted for ministerial approval and are, therefore, not independent. Meanwhile, incidents and near-misses have increased, many going unreported.
The Civil Aviation Ministry supervises two major agencies: the DGCA and the Airport Authority of India (AAI). Both are directly concerned with air safety.  While the DGCA is the licensor, regulator as well as the implementer of safety, the AAI provides the entire air traffic service over the country, including a vast oceanic air space. Both these institutions have not kept pace with the growth of air traffic.

There are huge vacancies within the existing strength of technical staff with both these organisations. In the DGCA, vacancy levels run as high as 50 per cent in some of its directorates. In the AAI, the shortage of air traffic controllers is becoming a major safety issues. As traffic movements increase, the need to have more controllers is absolutely necessary.

Training has also been a causality because of shortage of critical manpower. Recruitment of highly skilled technical staff on lower than market salaries through an excruciating entry process — Union Public Service Commission (UPSC) recruitments — is not only painful but self-defeating.
India’s air safety record has been traditionally good. The Federal Aviation Authority (FAA) of the US conducts a survey of countries whose aircrafts come into their country. They have categorised the countries into Category I and II with Category I countries being those with whom they have no safety problems. Category II are those countries they consider whose safety procedures are inadequate. Category II countries have some restrictions placed on them. The International Civil Aviation Organisation (ICAO) also conducts safety audits of all member countries. The US has always rated India in its Category I while the ICAO had given India a clean chit. However, of late, the FAA has issued a notice to downgrade India to Category II and the ICAO’s 2007 safety audit report, too, is reportedly full of reservations.

Media reports about near-misses may have their individual background, but they are a symptom of a growing malaise. The sudden growth of air traffic in India has been a great story and is a manifestation of India as a growing economy. But to maintain it, there is a need for sustained growth in the safety apparatus with a proper plan. Any shortfall in it can prove to be a disaster.
It will also put on hold future plans of our airlines to grow. Obsession with airlines and their problems and policy changes to be made according to issues including security is only a prescription to disaster. If India is downgraded to Category II by the FAA, it will be a slap in the face of Indian aviation. It is high time we put our house in order and safety be given the priority it deserves.

Sanat Kaul is former representative of India to ICAO and is current chairman, International Foundation of Aviation and Development.

Future of aviation industry in India

With Boeing raising forecast for demand for civil aircrafts in India by 6% to 1,850 new planes in the next 20 years based on an elaborate method of calculation, there is no doubt that the aviation sector is in for a big growth, provided the government does not mess it up. Like the telecom sector, this sector can provide answers to many other economic sectors that are stuck up in a quagmire. 



It has been adequately proved by economists that aviation is a catalyst to growth, but the price must be right. For example, tourism (both domestic and international) can be a major provider of economic prosperity as well as employment. But unless tourism ministry plans out its tourism circuits and arranges to have air connectivity at a competitive price to its competitors, the growth will be poor. Indians find it cheaper to holiday in Thailand than India, in spite of the fact that Thai Bhat has gone up in value. 



Role in connectivity 
Similarly, the industry requires good connectivity, and that is why Indian industry tends to concentrate on few urban areas. The five industrial corridors being planned will need airports to connect, as otherwise, no big industrialist would go there. As the middle class grows, time takes precedence over price and faster connectivity provides better results. Similarly, medical tourism should be based on connectivity so that our quality hospitals get patients from all over the world. So far airports have agreed to have hotels in their compound but not hospitals. Why not?

NCAP is commendable

The Ministry of Civil Aviation has come out finally with a new National Civil Aviation Policy (NCAP), which is fairly comprehensive and need to be complimented for it. While one can pick many holes in it, the fact that it has come out with a final policy after a 10-year wait is something to be said. The policy has stated up front that India has the potential to be the top three in terms of domestic and international passenger traffic. While this is certainly possible, it is necessary to have the right policy with the flexibility to tweak it when necessary. 



This policy document deals both with international potential as well as  regional connectivity. Here, it may be stated that unlike roads or railways where public funds come from budgetary sources, aviation development is largely from its own sources. Except for Air India, where budgetary resources have been invested after 84 years of its existence for its revival, both airlines and airports have come up on their own funds. 



Role of various charges levied


While airlines finance themselves privately, Airports Authority of India has a non-lapsable fund from its income out of  navigation charges and earnings from a dozen profit making  airports. Here lies the rub. For airlines to be financially viable, airport charges and government taxes and fees need to be reasonable. Is this the situation in India? 



The taxes and fees including service tax, airport development fee, among others, are very high and form more than half the price of the ticket. Airport charges at metro airports are also high. On top of that Directorate General of Civil Aviation (DGCA) has put, rightly, many consumer-friendly conditions on the airlines which makes cost of airline running very high. These conditions are not on other forms of transport like the railways and road transport, who are relatively less taxed. 


There is a need to wean away passengers from railways and allow airline to take the load as railways tend to subsidise passengers from its freight earnings, which is neither good for the railways nor industry. 

Railways share in freight in India has already decreased from 53% in 1986-87 to less than 30% today. Air India is now wooing the Rajdhani AC II tier passenger on key metro routes by offering them unsold airline seats four hours before departure on line. This integration of railways with airline is a great move by Air India in the right direction and hopefully other airlines will follow. 

Bullet train — a failure



However, the current policy of  the government in introducing a ‘trophy’ project like the ‘bullet train’ is totally unnecessary. Instead of spending Rs 1 lakh crore with concomitant land acquisition issues, it would be prudent and much cheaper instead to buy a few A380 aircraft with 555 seats and put them on a shuttle service between the two terminal points of the proposed bullet train at, perhaps, even with a little subsidy. As a matter of fact, tickets for a bullet train are much higher than ordinary railway tickets.

In order to build up an aviation infrastructure of airports the first step was taken in 1994 after abolition of Air Corporation Act of 1953, when monopoly of erstwhile Indian Airline was taken away. The DGCA then issued Route Dispersal Guidelines to all commercial airlines to cross subsidise unpopular routes of North-East, J&K and island territories. In the present policy, another subsidised scheme for regional connectivity called Regional Connectivity Scheme(RCS) has been introduced. This scheme is based on funding from passenger tickets/concession by state governments and by airports. While this scheme is conceptually good, it appears very complicated and difficult to implement. If successful, it will be a great scheme for connecting another 50 odd regional locations in India from exiting functional airports.

Lack of manufacturing



The thing to worry is the lack of aviation-based manufacturing in India. The Indian automobile industry as well as the space industry have done very well but aviation-based manufacturing has lagged behind. India desperately needs to build up its aviation manufacturing base. However, with the current government polices even MRO (Maintenance Repair and Overhaul) services have not been successful and our airlines send their aircraft abroad for servicing.



Lastly, but not the least, the new policy of permitting 100% equity of foreign airline in a domestic airline needs a relook. Besides security aspects, this will destroy the local airline industry and the very basis of nationally-owned airlines. India has done it unilaterally, but it will never be on a reciprocal basis, as no major aviation power will allow its airline industry to be destroyed.

(The author is Chairman of International Foundation for Aviation, Aerospace and Development-India Chapter)




Free market vs price control


We rejoiced when Low Cost Carriers (LCC) were giving away practically free tickets. 

With competition and new purchases of aircraft, the travellers had a great time flying on unbelievably low priced air tickets.

The LCC overtook the Full Service Carriers and the Indian middle class started flying on holidays. But free market is not always the best model. Excess demand and limited supply do create high priced tickets when there is a scarcity. Today the growth of domestic air traffic is touching 20% and airlines are finding good times returning but with shortage of seat capacity the ticket prices are shooting through the roof, especially if you want to buy one at short notice. The Minister addressing a seminar has made a statement that these may be predatory prices and need to be checked. Mention has also been made of cartelisation and the need for Competition Commission (CC) to look into this. It’s easy to jump to such conclusions but, looking at about 20% growth in domestic traffic it may be neither. Do we then allow the prices a free float at the cost of consumers/travellers? 

Can this qualify as predatory pricing? Predatory prices apply when one airline tries to reduce the price to capture the market. This does not appear to be a case of predatory pricing. Can this movement in price be considered to be a case of collusion between airlines? This would amount to cartelisation, an oligopolistic action and would be subject of action by CC. It may be recalled that CC has taken suo moto cognizance on the alleged cartelisation between Jet Airways and Kingfisher Airlines and the matter is still sub judice. This also does not appear to be such a case from indications available. It then seems to be a result of demand and supply gap resulting from a 20% growth.

Demand supply gap 

What would be the legal position in such a case? We must also remember that other means of transportation in India and abroad generally go for fixed prices like the railways and buses and are based on distance travelled. This is not applicable in air transportation as there is no government control on fixing of tariff. Airlines follow their own policies depending upon demand and supply. They take the risk of buying the aircraft and running them on a scheduled service. As there is no assured traffic and it can vary from season to season, between weekdays and weekends, holiday season to normal days, the airlines have to manage their bottom line and profits by “intelligent” ticket pricing. There is also the insidious outcome of uncontrolled pricing due to demand going up on account of unfortunate and unforeseen incidents. For example, during the recent two incidents of cloud burst at Leh and air crash at Mangalore, when next of kin were wanting to rush to these sites, the ticket price shot up very high.

So we come to the ethical issue: Is price control of airline ticket by a government authority in public interest? Is free market not the best determinant of public interest? I think free market is an overrated concept based on demand and supply. Perfect market as provided in text books does not exist. How then do airlines in India fix their tariff? Earlier, Indian Airline as a public sector airline and market leader was the price setter. It is not clear now who is the market leader, especially with LCCs (in the present case some LCCs charged higher than regular airlines). With travel websites providing ticket prices online, it is the consumer who has a perfect knowledge in an imperfect market. The sudden blips in prices or anticipated increase during known season are based on statistical modelling. 

Limited powers

The DGCA has limited powers. However the Aircraft Rules of 1937 framed under the Aircraft Act of 1934 has a provision which meets the requirement. Under rule 135 dealing with tariff, subsection 4 and 5 state:

Subsection 4 - Where the Director-General is satisfied that any air transport undertaking has established excessive or predatory tariff under sub-rule (1) or has indulged in oligopolistic practice, he may, by Order, issue directions to such air transport undertaking.

Subsection 5 - Every direction issued under sub-rule (4) shall be complied with by such air transport undertaking.

The DGCA has correctly used this rule to consider the sudden high increase in tariff currently as ‘excessive’ as otherwise airlines are free to set their own fares and Ministry cannot interfere. Furthermore, Ministry cannot presume collusion. 

(The writer is Chairman of International Foundation for Aviation, Aerospace and Development (India Chapter) and former Joint Secretary, Civil Aviation Ministry.) 


Flying at the right price

2010-12-21

As tariffs on most domestic routes climbed up, the Union civil aviation ministry and the sector regulator sprang into action to give private airlines a rap on the knuckles for jacking up tariffs. Was this a legitimate government intervention? We examine the issue, as always, in a simple Q&A format

How do airline fares get determined? It must be stated at the outset that pricing of airline tickets is not within the purview of India’s aviation industry regulator, the Directorate General of Civil Aviation (DGCA). And airlines are free to fix the price of their tickets. This is subject to DGCA’s Route Dispersal Guidelines, which require airlines to fly 10% of their trunk routes in remote areas like J&K, the North-East, Andaman, and Lakshwadeep Islands. Within this framework, airlines determine their own fares. However, under Aircraft Rule 135, framed under the Aircraft Act of 1934, the DGCA has the obligation of oversight of ticket prices. I quote the relevant sub-sections of this rule: Subsection 4: Where the Director-General is satisfied that any air transport undertaking has established excessive or predatory tariff under sub-rule (1) or has indulged in oligopolistic practice, he may, by Order, issue directions to such air transport undertaking. Subsection 5: Every direction issued under sub-rule (4) shall be complied with by such air transport undertaking.

Airline pricing is an intricate exercise in marketing. The ticket price does not necessarily have anything to do with distance travelled. A long-distance ticket can be cheaper than a short-distance one. Three persons sitting in a row could easily be paying three different prices for the same journey. Date of purchase will also vary the ticket price. The day of travel, say weekend vs week day, will vary and impact price. The ticket price is a marketing exercise based on demand and supply. In addition, it also takes into account how to attract customers from other airlines and to create customer loyalty. It is based on complicated computer programmes, taking into account various factors like the ones mentioned above, to maximise profit and create customer loyalty.

However, in developing a perfect airline price search engine, there have been many problems and little success. The problem gets even more complicated in real life when thousands of fares may play out in a journey involving changes and halts. Are there trend issues involved? If there is indeed a predictable seasonality, did the Indian government get involved at a misleading juncture, in so far as fares will start going up again around Christmas?

Yes, trend issues are involved as different seasons have distinct demands. Christmas-New Year is one such season; school holidays bring their own demand. During the ‘high season’, one can expect an increase in price due to demand and supply playing out in a free market environment. But the recent surge in prices was not really based on any established trend. The growth in the economy led to an increase in demand.

Is there an airline cartel operating in India?
Cartelisation is never done openly and announced. But cartelisation in the airline sector is a known phenomenon. Due to strong anti-trust legislation and compliance pursued in western countries, there have been many proven cases of cartelisation by airlines. What constitutes cartelisation? Cartelisation can be defined as an ‘abuse of dominance’ when dominance can be considered at 50% market share. How does one define ‘abuse’? Abuse of dominance will involve collusive action by airlines, to jack up prices from their position of dominance. Is the present case of high ticket prices one of cartelisation and abuse of dominance or is it a simple case of changing demand and supply? As per a recent newspaper report, the ratio of the number of ticket sales to the number of seats available per day does show that the sudden hike in prices may not have been a simple case of demand and supply. There is evidence that ticket prices shot up very high for flights that actually carried a significant number of vacant seats. If this is correct, it suggests the creation of an artificial shortage in the face of rising demand. A working analogy would be to wholesalers hoarding potatoes to jack up prices and make windfall profits. But before we come to this conclusion, we need to properly check up on the statistics. This can be best done by the Competition Commission of India. Can a cartel exist in a sector that has the participation of a government player? Air India, in this instance.

Certainly. Public sector monopolies have often abused their monopoly or dominant position. In the airline sector, Indian Airlines was a monopoly to begin with and then went on to become the price leader in the nineties. At that time, ticket prices did go up due to monopolistic or oligopolistic conditions. While government approval was taken in advance, high overheads and allowances ensured that the airline needed to charge higher ticket prices to make a profit or even break even at times. Any way, even in the nineties, the dominant player and market leader would set the trend and others would follow. It was only after the advent of low-cost carriers that free market-determined pricing based on demand and supply became operational in the Indian skies.
Was civil aviation minister Praful Patel being fair in asking for a reduction in private airlines’ fares? On the other hand, can private airlines cry foul when they keep going to the government for one kind of bailout or another?
As already stated, Aircraft Rules of 1937 do put the responsibility on DGCA to ensure that there is no predatory or excessive pricing of tickets. The regulator also has to ensure that there are no oligopolistic tendencies in civil aviation. All this has to be to the subjective satisfaction of the DGCA. The Aircraft Rules have thrust this responsibility on the DGCA. It is, therefore, for the DGCA to determine whether the sudden jump in prices was a simple case of demand and supply or a case of oligopolistic developments by which airlines were creating an artificial shortage and making prices jump to make windfall gains. It may also be pointed out that private low-cost carriers have set the trend that keeps down prices and have been instrumental in the lowering of ticket prices in general. In the present case, it has been noticed that not only were the ticket prices of low-cost carriers as high as those of full service carriers, they were actually higher in some cases. This new tendency gives an indication that there might have been an oligopolistic trend in the market. Airlines seeking bailouts and fiscal concessions from the government is a separate issue and has no connection with this matter.
Is it the DGCA’s responsibility to keep a watchful eye on the pricing of airline tickets in spite of the sector having been deregulated?

Yes, it is. The DGCA of India is required to maintain a surveillance over prices to ensure that there is no predatory pricing, no excessive pricing or formation of cartels. The Competition Commission is the right forum in case cartelisation is taking place and collusive pricing of tickets is being done. In case DGCA finds prima facie collusion between airlines, it should recommend the case to the Competition Commission of India for investigation and disposal.
The author is chairman, International Foundation for Aviation, Aerospace and Development (India Chapter)