Govt bailout for AI comes under attack from IATA, IndiGo

New Delhi: Condemnation of the government’s subsidies to Air India, which indirectly distort the market for private players, appears to have grown manifold over the last several days.

First, it was IndiGo promoter Rahul Bhatia who wanted to know why the government is tinkering with policies for a select few in the industry, referring to Air India. Today, the chief of the International Air Transport Association (IATA) accused cash-strapped Air India of distorting the market through low fares even as it receives monetary support from the government.

Hitting out at the government’s protectionist policies on Air India, IATA Director General and CEO Tony Tyler said, “Government aid must not be a blank cheque. Clear accountabilities and timelines for management, employees (including the pilots) and everybody involved have to be set and transparent disclosure is needed to measure progress.”

An Economic Times report quoted Bhatia speaking in Kolkata last week, where he said his company knew about “artificial competition” from Air India. “But, what we didn’t know and regret is the government’s relentless effort to keep inefficient private operators in business.” The last was probably a reference to Kingfisher, which is drowning but has not been allowed to drown.

[caption id=“attachment_390973” align=“alignleft” width=“380”] Air India tickets are low-priced for sure but not lower than the fare buckets which are constantly being monitored by sector regulator DGCA.PTI[/caption]

“We probably are a zero-debt company, not owing money to anybody and pitched against competition, which gets sop after sop. But this game will end soon,” ET quoted him saying.

So should the government stop funding a state-owned airline? An official statement said on Wednesday that being the owner of Air India, it was well within its rights “to promote the national carrier and prepare it for competition. Air India was highly under-capitalised at the time of merger in 2007 and has, therefore, been provided support in the form of equity to correct the skewed debt-equity ratio. In fact government has not subsidised Air India.”

The statement further said that though private players have not been provided any financial support, they have been allowed to perform according to market forces.

So are Tyler and Bhatia expecting a state-run company to stop asking for funds from its parent? And Air India tickets are low-priced for sure but not lower than the fare buckets which are constantly being monitored by sector regulator DGCA. Besides, IndiGo itself has some of the lowest-priced tickets and claims to be profitable despite these low prices - the only Indian airline which is profitable today.

The statement from the ministry also rubbished Bhatia’s claims about favourtism in traffic route allocations. “Indigo has been allocated traffic rights based on their requests for international routes. During this Summer of 2012 alone they have been given 63 services per week which include 28 services to Dubai. In addition, Indigo has also been given bilateral rights to fly to Singapore, Bangkok, Jeddah and Kathmandu. This is significant in the background of the fact that earlier their total services to international routes were only 53 per week”.

Also, Civil Aviation Minister Ajit SIngh has already scrapped the age-old First Right of Refusal of Air India over international flying rights. So perhaps the criticism of Bhatia and Tyler has come a bit late to be valid.