Business: Indian Airlines; Unfair Hike

India Today
November 2,1998

INDIAN AIRLINES
Unfair Hike

The national carrier passes on the burden of its operational costs to the traveller.

By Robin Abreu

Ananth Kumar It seemed too good to be true. After eight miserable years Indian Airlines (IA) had managed a turnaround. A Rs 45 crore net profit for 1997-98 and a 90 per cent improvement in its rating of inflight services and punctuality had industry watchers and customers singing paeans about how the airline had made the landmark achievement at a time of recession. But the euphoria, as it turned out, was shortlived.

On October 1, IA took the industry by surprise when it raised its fares -- for the third time in the past one year -- by 10 per cent. It soon became clear why. The first quarter results for the current year show that the airline is back to making losses. With the figure pegged at Rs 23 crore, IA has attempted a mid-course correction, opting to pass on the rising costs of its operations to the customer.

No sooner had IA announced the fare hike than private airlines like Jet Airways and Sahara followed suit, making air travel increasingly unaffordable in the country. Economy class traffic on major domestic routes of IA and other airlines has already registered a fall of 10 per cent since October 1. "Air travel will now be out of the reach of many," admits Union Civil Aviation Minister Ananth Kumar. "IA was told not to increase its fares because of the depression in the market."

"We had no option," retorts a senior director of IA. Unless something is done, he explains, the airline will fly into the red on the eve of the three-year disinvestment programme and will not command a premium. But the short point, say some industry watchers, is that IA had been emboldened to make the move since the Tatas had pulled out of its proposed project. With the only party which could have matched its vast operations out of the way, IA could continue to rule the uncompetitive Indian skies.

Dismissing such observations, an IA official says the airline is indeed in a piquant situation. With the hardening of the dollar, IA's direct costs alone have risen to Rs 130 crore. The special additional customs duty on spares has also pushed up costs by Rs 20 crore. Similarly, the cost of servicing debt and instalment charges have gone up by Rs 30 crore and maintenance costs by Rs 20 crore. To make matters worse, the landing charges have gone up by 10 per cent and navigation charges by 22.5 per cent imposing an additional burden of Rs 30 crore. As a result, the airline's overall costs for the current financial year are expected to cross Rs 200 crore as against the earlier projection of Rs 90 crore.

While IA has been trying to impress upon the Government to rationalise fuel prices -- it paid Rs 662.99 crore for fuel and power last year -- to bring down costs, it has done little to address other major expenditure heads such as salaries, ageing fleet and unviable routes. At a time when the airline should be reducing its largely redundant employee base whose wage bill is Rs 710.48 crore, it is constantly recruiting fresh staff. In the past five years, over 2,000 members have been added to its staff.

Ageing fleet means higher maintenance costs, poor utilisation and a higher wage bill as more staff are needed to maintain them. That IA has been incurring avoidable costs on unviable routes is also true as most of them are run on subsidised rates. The decline in traffic on routes like Kochi-Agatti and Agartala-Guwahati has resulted in a loss of over Rs 50 crore over the past year. "Instead of cutting down on such unnecessary costs," says an IA official, "we have taken the easy way out and announced another hike." By resorting to such steep hikes, IA is only further reducing the size of the domestic market, which in the absence of competition is not growing. Not a good sign for a country flying into the millennium.

Issue Contents | Write to us | Subscriptions | Syndication