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Turbulent skies

In most respects, Indian air passengers never had it so good but the airlines themselves are flying into turbulence. The "open skies" policy pursued by the Government has yielded results on a number of parameters: increased availability of seats, connecting towns and cities previously not on the air map and, most importantly, taking air travel to the not so well off. The character of the airline industry has changed drastically, with many new players entering it. But the problem is that despite the increased availability of seats — the number rose from around 80,000 at the beginning of 2005 to 124,000 in March 2006 — the low fares, and aggressive promotional measures, the demand has not kept pace. For all carriers, huge unutilised capacity remains one of the biggest threats to profitability. The other big threat is, of course, the high cost of aviation fuel, which accounts for an abnormally high proportion of total costs particularly for the low cost carriers such as Air Deccan. The grossly inadequate infrastructure especially at airports like Delhi adds to the woes of airlines by way of unnecessary holding in the air and delays in landing and take-off and thereby inflicts an avoidable financial burden on them.

All these concerns figured at a recent meeting between the airlines industry and the Civil Aviation Minister. Topping them all was the precarious financial position of most airlines: their cumulative loss could be as high as Rs.2200 crore this year. There could be some respite on the fuel cost front, with the Government moderating its levies in tandem with the declining prices in the global oil market — a course the Civil Aviation Minister promised to pursue. For many airlines that could provide a welcome breather but certainly not an opportunity to cut air fares further. In the event, most of the present woes can be traced to the aggressive price competition triggered by the new breed of "no frills" carriers. For an industry not used to price competition, the advent of steep discounting in tickets has been a major unsettling factor. The pioneering airlines could not move towards more rational pricing, as newer carriers stepped in with their discounted fares. The Government is likely to pursue its policy of minimum regulation but might raise the bar for new airlines and keep a tab on the financial health of the existing ones through a system of periodical review. Air travel in India has never been so affordable as now, but there is a case for looking more closely at the apparently unsustainable strategies pursued by the airlines.

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