Tag Archives: aviation industries

The Overweight Maharaja Needs A Diet

At 35,000 feet on board a 747, I have an amusing choice.  For $25 I can buy a bottle of Napa Valley Cabernet from the inflight shopping catalog, or buy 10% of the airline I’m flying.

Okay not quite.  But a functional and sustainable civil aviation system is critical for any nation’s economic security, and both the United States and India have aviation industries in severe financial distress.  In the past 20 years there have been over 100 bankruptcies by US airliners, with losses of over $30 billion and recent layoffs in the tens of thousands.  India’s airliners are under a similar specter.  Air India, once regarded as one of the best airlines in the world, is continuing a 30 year run of sad decline as annual losses grow alongside management scandals and customer dissatisfaction.  Most of India’s private sector counterparts are doing no better.

Both India’s and America’s airline industries have a lot to learn from each other, mostly on what doesn’t work, but that’s a good place to begin.  One, American legacy carriers attempting to attract passengers by offering the lowest fares while monetizing dining, entertainment, baggage, and other service lines has been a failing strategy.  Airlines not marketing themselves as no frills carriers should be setting the highest industry standards for service and not resorting to penny pinching as a means of safeguarding financial health.  Two, ground time of aircraft in the U.S. and India is unacceptably prolonged and capital intensive assets must be utilized far more productively.  Three, develop financing strategies for execution of fleet renewal that allows for deferment of deliveries or leasing out of aircraft in the event of a downturn.  Many labor disputes in India and America have arisen as a result of pay cuts stemming from cash flow issues related to fleet renewal costs.  Four, developing a long-haul network and abandoning revenue diluting hubs in London, Paris, and Frankfurt, used for America-to-Asia air-traffic.

Regulatory reforms however are no less urgent.  Recognizing the importance to national security of civil aviation infrastructure, rationalizing the taxes on aviation fuel is a must, particularly for India which has some of the highest jet fuel taxes in the world.  Two, raising limits on FDI and allow foreign players to help recapitalize airlines.  Three, investment in modernizing national air traffic control systems to help lower fuel and labor costs.

Lastly, no more commissions which meet amid big fanfare but pass reports onto regulators who sit on the files.  The problems of both India’s and America’s airline industries are no big secret, and there are no shortages of talented management and turnaround plans.  Regulators ought to listen more, and explore what other nations facing similar crises have tried.  The Maharaja badly needs a diet.