India's everyman the loser in aviation pact
By Raja Murthy
MUMBAI - India's top two private carriers and bitter rivals Jet
Airways and Kingfisher Airlines have announced an alliance that could knock
low-cost carriers out of the skies and set the country's air passenger traffic and
business back by a decade - to a higher airfare, low-traffic era dominated by
India's government-owned carriers and one or two private airlines.
The announcement by Jet Airways owner Naresh Goyal and Kingfisher
Airlines owner Vijay Mallya on Monday night was ostensibly aimed at "cost cutting
and synergizing their operations", but the consolidation spells more trouble
for the five-year-old budget airlines industry now struggling to stay above
ground after promises of bringing the benefits of flying to millions of
first-time passengers.
Jet Airways, India's most successful private airline, later said it is to lay
off 1,900 employees. Hundreds of angry employees protested outside the airline
office in Mumbai on Wednesday, furious at the insensitive way they were
suddenly rendered jobless. The early morning Jet Airways flight crews, for
instance, came to know of their being "de-rostered" after calling to find out
why staff cars to the airport did not arrive as usual to pick them up.
Many of the sacked Jet Airways employees, most in their early 20s, were in
tears while telling reporters of aviation academy loans to be repaid and house
rents to be managed.
Kingfisher last month sacked 300 employees, and indicated that a further 1,000
or more may lose their jobs
Jet Airways and Kingfisher Airlines said their deal would allow cost cuts of
$309 million through code-sharing, crew training and utilization, joint fuel
management, and sharing of ticketing and ground services. The two have 60% of
the market, and surviving low-cost carriers such as Indigo, Go Air and SpiceJet
might need to announce similar agreements to stay afloat.
India's aviation industry is expected to post losses of about US$2 billion for
this financial year ending March 2009, or about 25% of expected overall global
aviation industry losses. In keeping with the present era of governmental
bailouts, the aviation industry has asked the Indian government for a $1
billion to help it through the present crisis.
Praful Patel, India's civil aviation minister and millionaire industrialist,
has tried to downplay the government's role in the industry, but his
ministerial colleagues have indicated that some intervention might be possible,
in the form of a bailout, tax sops or an investigation as to whether the Jet
Airways-Kingfisher deal amounts to the formation of a cartel.
Passenger traffic fell by over 5% this August from a month earlier, while
growth has slumped from 33% in 2007 to just over 7% this year.
The airline slump threatens
the supporting industries such as in-flight crew
training schools, puts pilots out of jobs while
they
still have to repay bank loans taken out to cover their
training fees, and throws into doubt the viability of new multi-billion dollar privatized airports
such as those in in Bangalore and Hyderabad. Orders for new aircraft, worth
US$15 billion with Boeing alone, are also thrown into jeopardy. Jet Airways
has already held talks about delaying Boeing planes, while Kingfisher has
scrapped three Airbus orders, according to Bloomberg report.
One winner from the downturn is Indian Railways, which has started to employ
out-of-work air hostesses as "train hostesses" in its luxury train
compartments. It reports a surge in its air-conditioned class ticket bookings,
clientele that until recently headed for airports instead of railway stations
to take advantage of fares as low as $90 for a New Delhi - Mumbai flight.
Currently, taxes alone amount to nearly $90.
The aviation woes have already seen the disappearance of India's first low-cost
carrier, Air Deccan, and its mascot "Common Man", the iconic dhoti-clad,
checks-jacketed character created by legendary Indian cartoonist R K Laxman,
who over five decades has captured the life and troubles of India's ordinary
people.
About a decade ago, RK Laxman told this correspondent the reaction when he once
put his cartoon character into an aircraft. "Many readers complained to me that
day saying, 'How could you put the 'Common Man' inside an aeroplane? He cannot
afford to fly.' So I had to tell them, 'No, he won a free air ticket in a
contest!'"
By 2005, India's middle classes were able to fly to the extent that Air Deccan
adopted Laxman's "Common Man" as its corporate mascot. Three years later, Air
Deccan founder GR Gopinath has lost his airline and the "Common Man" may again
have to depend on winning a contest if he wants to fly.
The younger Kingfisher Airlines took over Air Deccan this year possibly to
secure qualification to fly to foreign destinations. Five years of operations
are necessary to secure permission for such flights. Air Deccan has now become
"Kingfisher Red".
Jet Airways, in operation for 15 years, similarly absorbed Air Sahara in 2006
at a cost of $500 million, then turned it into lower cost domestic carrier Jet
Lite, priced lower than Jet Airways flights but higher than budget airlines
such as Go Air and SpiceJet.
The two high-profile businessmen who run Jet Airways and Kingfisher are no
strangers to controversy.
Jet Airways chairman Naresh Goyal, 57, had to officially state to the Bombay
High Court last year that mafia dons did not fund his takeover of Air Sahara,
after a petition was filed making the allegation.
Kingfisher's Vijay Mallya, a 52-year-old billionaire, is chairman of the United
Breweries group, owner of one of the largest private yachts in the world the
95-metre Indian Empress, and owner of the $111 million Bangalore Royal
Challengers cricket team, which plays in the $1 billion Indian Premier League.
His team finished second last in the inaugural season this year, but not before
Mallya sacked its chief executive, Charu Sharma, three weeks into the
tournament.
This year, Mallya also became the first Indian owner of a Formula One team, the
former Skyper team, which Mallya re-named "Force India"; it has shown as little
success as his cricketing venture, either bringing up the rear of the field or
failing to finish.
The Mallya-Goel tie-up, which could further reduce air passenger volumes
through higher airfares, could be the latest example of India's civil aviation
sector shooting itself in the foot.
High taxes have particularly crippled low-cost carriers. The duty on aviation
turbine fuel is amongst the highest in the world, with some states such as West
Bengal charging nearly 30% sales tax on the fuel.
As they battle to survive, airlines are calling for a 50% cut in airport
landing fees, withdrawing duty on spare parts for aircraft maintenance, and a
freeze on an increase in charges for airport services and usage.
The Indian government and politicians, however, will not be affected by the
loss of low-cost flights. Parliamentarians have given themselves and their
families their right to free air travel at taxpayers' expense.
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