Is it time for the privy purse?

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 In 2012, International Air Transport Association (IATA) reported that nearly 3 billion people and 47 million tons of cargo were transported by air. The Civil Aviation Industry made an aggregate profit of USD 7.6 billion on revenues of 638 billion which is a 1.2% net profit margin. This was despite world GDP growing at 2.1% and oil averaged a record high of 111.8 dollars a barrel.  Strong economic growth in emerging markets resulted in an expansion of passenger connectivity.  IATA announced that for 2013 airlines were expected to return a global net profit of 12.9 billion. Indian Civil Aviation Scenario was seeing signs of revival. In early 2013, then Civil Aviation Minister Ajith Singh announced at a gathering that Air India was to see a 20% increase in the total revenue by the end of the financial year 2013-14. This meant an expected increase in revenue from Rs 16,130 crores to Rs 19,393 crores. The reality wasn’t as colorful.

Fast forward to the monochromatic end averaging of the financial year 2013-14, Air India reported a net loss of Rs 5,389 crores, a revenue of Rs 17,750 crores, and a debt of Rs 40,000 crores.

The years between 2012 and 2014 were not amicable for most airlines in India.  In addition to the national carrier, Jet Airways also reported its highest-ever annual loss of Rs 4,129 crore in 2013-14. Additionally, a weak rupee during this period crippled the airlines further as most unavoidable expenses such as fuel, runway charges, and loans are dominated by US dollars. In these crucial years, the ministry precarious approach added fuel to the fire. After spending over Rs 20,000 crores to expand and modernize airports across India, the government hastily handed over 20 airports to private entities on a revenue-sharing basis, free of cost!

At that point, the government could not be trusted to revive the airline anymore. However, not everyone was in favor of the move to privatize Air India. The Centre of Indian Trade Unions (CITU) condemned the move to privatize. They reiterated the then Civil Aviation Minister Ajit Singh’s statement, “Air India belongs to the nation and is not the property of the council of ministers of the UPA government.” CITU blamed the ministry’s reckless experiment of merging Air India and Indian Airlines for the downfall of both.

The committee of public undertakings (COPU) had recommended a few corrective measures to cope with the losses borne by Air India. CITU evaluated its implementation and issued the following statement in 2013 "The government did not deliberately act upon these recommendations, thereby making the financial situation more critical for Air India. This has given the minister an opportunity (to rake up) this proposal for privatization”.

There was a 3% decline in traffic.  There were a lot of unaddressed structural challenges like high sales taxation on fuel and high input costs.  The low-cost carriers continued to dominate In India with a market share of over 70%.  Air India had a legacy of high-cost, ineffective, and slow-to-react approaches.  The private players could eat into the erstwhile monopoly market share by offering no-frills low-cost travel.  

After encountering a net loss of Rs 5,859.91 crore in 2014-15, a net loss of Rs 2,636 crore in 2015-16 called for celebrations.

Reference

Venkatesan, R. (2009, August). Should the Air India Maharaja Be Awarded His Privy Purse? Economic and Political Weekly, 44(32). https://www.jstor.org/stable/25663420

Acknowledgment: I thank Ms. Vaishnavi Krishna Mohan, Student of BA(Hons) Economics at Ahmedabad University for her support in content development


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