Not just SpiceJet: Air India is the cancer cell keeping the aviation industry sick

SpiceJet, the airline that has been largely mismanaged by the Marans of the Sun media group, has asked for a bailout from the government. The Marans should be asked to go jump.

However, the government would have been on firmer ground denying their request if it had done the same to Air India, which, despite a Rs 30,000 crore bailout package promised over 10 years, is nowhere near viability. In 2013-14, the airline made a loss of over Rs 5,000 crore on revenues of Rs 17,750 crore, and the situation is nulikely to get better this year.

Air India is like a cancerous cell at the heart of Indian aviation that can infect everyone with its malignancy. The reason is simple: as long as the taxpayer keeps it afloat, no other airline can be viable.

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If, despite a sharp fall in fuel prices, Indian airlines are nowhere near making money ( SpiceJet reported a fifth straight quarter of losses in the year to 30 September 2014), clearly they have no business taking to the sky. A loss-making airline is a serious threat to the lives and limbs of passengers as they may be short-changed on safety.

However, the larger reality is this: if only one airline (Indigo) can make a profit (and we don’t know the full details even here), then it has to be assumed that Indian aviation is by-and-large unviable. Or it has a broken business model that needs to be fixed first before it can be allowed to fly.

To fix a broken business model, you have to start from a zero-base, and not from where you are. The question all airlines need to ask themselves is: if I had to start an airline today, would I do it in the current policy environment, and current fares and airport charges?

The government needs to ask itself: what is the best way to create a new policy from the ground up without tweaking existing policy on a day-to-day basis? If one airline after another is falling sick, either its own policies are wrong, or the wrong kinds of promoters are entering the business. Or it could be a bit of both.

The truth is India’s aviation policies have been micro-managed to suit the current interests of various players at various points of time. The policies have not been thought out for the long term. If Jet didn’t want new entrants in the 1990s, then ownership guidelines were tweaked to keep the Tatas and SIA out. If more domestic airlines were keen to fly abroad, rules were introduced to make a minimum of five years’ domestic operation as a prerequisite for flying abroad. To protect Air India, more rules were tinkered with.

What does it matter who owns an airline or whether it wants to fly abroad or in India? Or what kind of aircraft you should own or lease? Are these what the policy-makers should be concerned with?

Such wayward policies ensured that only promoters who were thick with the ministry entered the picture, never mind their solvency or business credibility. What made a Vijay Mallya or a Kalanithi Maran or a Nusli Wadia think that they could run an airline when they neither had a nodding acquaintance with the industry or serious money to run an airline?

To be sure, aviation has relatively low entry-barriers, since anyone can hire airplanes without too much capital. Aircraft rentals were thus seen as a variable cost rather than a permanent overhead, making it seem like an easy business to get into. Thus promoters thought it was only about managing cash-inflows to cost outflows, when their fundamental business model in a thin-margin business was flawed.

But as the carcasses of hundreds of failed airlines around the world show, the business should really be driven by deep pockets. If the Marans cannot put their money where their mouth it, they should be shown the door. If Jet cannot find its own money to run its airline, it should be allowed to let Etihad run the airline.

We should not have to wait for years to figure out whether the Marans can bring in the money or not. If they can’t plonk the cash tomorrow, they should be told to shut down by the DGCA. We waited more than a year for Vijay Mallya to show the money, and he failed miserably. We should not repeat that mistake with SpiceJet. A quick death is better than prolonged agony for employees and passengers.

More importantly, the same message ought to be given to Air India. If it cannot show profits in the next two quarters, the rest of the bailout promised should be used to shut the airline down and pack off the employees with generous retirement annuities.

An Air India that is forever going to be subsidised will make the entire industry sick and unviable. No private promoter can compete with the taxpayer for resources.

The industry needs strong players with lots of capital and staying power to succeed. It is not about fuel prices or airport charges at all, as these are common to the whole industry. If you cannot price your tickets above the cost of operations, what is the guarantee that you will succeed even if fuel costs are lower - as they are now?

The takeout: Both Air India and SpiceJet probably need to be asked to shape up or close down. The sooner the better.