The Praful Bidwai Column
Deregulation is disastrous
JET Airways, India's largest private airline, decided to sack as many as 1,900 employees just two days after it announced an "alliance" with Kingfisher Airlines, India's second largest private carrier. Both decisions have a common cause: overcapacity and mounting losses in civil aviation, triggering desperate cost cutting.
Jet Airways reversed its decision to retrench the workers, including 850-cabin crew, after they launched protests. But the Kingfisher alliance, with greater implications for civil aviation's future, stands. It'll create an undesirable monopoly.
What impelled Jet's chairman Naresh Goyal not to sack the employees? He says his "conscience."
Mr. Goyal is less known for his conscience than for his sharp business dealings, including money-laundering charges levelled by former minister Arun Shourie.
Apart from pressure from civil aviation minister Praful Patel, the factor that probably weighed the most was middle class sympathy for the cabin crew, which represents what might be called the ambitious glamour component of this white-collar workforce.
The Indian elite shows no compassion for poor workers, especially unorganised ones, who lose their livelihoods under the impact of globalisation and liberalisation. Air-hostesses, however, are "people like us!"
Mr. Patel is desperate to rescue airlines -- as if they represented some worthy public cause. The industry's mounting losses will total $1 billion (Rs. 4,300 crores) on a turnover of $6 billion this year, and rise to $2 billion next year, nearly equalling the losses of aviation's greatest loser, the United States, whose airlines have long been in the red.
India's top three airlines have posted losses of Rs. 2,950 crores. The airlines owe the public oil companies over Rs. 2,000 crores and the Airports Authority Rs. 1,000 crores.
India's private airlines are in trouble for two reasons. First, they expanded recklessly in efforts to rapidly grab as big a market-share as possible. Second, the government deregulated aviation, jettisoning prudential norms like adequate capitalisation, and allowed carriers to set their routes, schedules and time-slots.
This led to wild competition, and a 30 percent-plus overcapacity. But going solely by their recent growth experience, carriers kept ordering more aircraft to retain market-shares, raising overcapacity and losses.
The airlines deluded themselves that air-travel would become affordable for "the common man." No-frills, low-cost carriers like Air Deccan strengthened this illusion.
Many airlines set their fares predatorily low to lure away rail travellers. But rail travel is cheaper and ecologically superior.
At any rate, most Indians cannot afford to fly. At the peak of the ultra-low fare regime, only three percent of the Indian population was flying! Now a significant proportion has naturally gone back to the railways.
By last year, thanks to aggressive pricing and overcapacity, several airlines became unviable. Jet bought Sahara and Kingfisher acquired Deccan. Such anti-competitive mergers shouldn't have been allowed, but they sailed.
Then 2008's sharp rise in aviation fuel prices came. Airlines formed a cartel and levied a minimum fare of Rs. 2,800, mislabelled as "fuel surcharge." That ended the low-cost aviation era, but not the industry's problems.
The core problems can be traced to a single cause -- mindless deregulation fashioned after the US model. Paul Stephen Dempsey, an expert in aviation and the law at Canada's McGill University, has lucidly analysed this.
He concludes that barely a decade after the 1978 Airline Deregulation Act was implemented; the US airline industry lost all of the money it made since the Wright Brothers' inaugural fight in 1903.
After 150 bankruptcies and 50 mergers, the US now flies the developed world's "oldest and most repainted fleet." Among the 176 airlines which deregulation spawned, only one remains, and that's bankrupt. Deregulation has led to greater monopoly and concentration, with just four airlines controlling two-thirds of the market.
Rather than leading to a reduction in fares, as laissez-faire economists had forecast, deregulation led to a fare rise and a decline in service. Social time worth billions has been lost because of time-consuming hub-and-spokes operations to which many airlines resorted to cut costs.
India has learnt no lessons from the US experience. It continues to rely on deregulation, even after it has manifestly failed on its own soil, as evidenced by the bankruptcies of Modiluft, East-West Airlines and Damania Airways in the 1990s, and confirmed recently.
Mr. Patel wants to retain the model after giving a generous Rs. 5,000-crore bailout to the industry, including reduced duties on fuel, and other undeserved concessions.
He sees himself as an industry promoter and representative, not a maker of rational policies or a regulator in the public interest. Worse, he supports the Jet-Kingfisher "alliance," although it's obnoxiously anti-competitive. The alliance will control 59 percent of the market, which is way higher than the 7 to 15 percent market-share which attracts anti-monopoly or anti-trust action in most countries.
Of course, India is unique in this regard. Under Dr. Manmohan Singh's ideology-driven liberalisation, India deranged the Monopolies and Restrictive Trade Practices Commission, but she has failed to appoint the promised competition commission. So, monopolies merrily thrive under "free-market" policies!
The ruling elite continues to repose blind faith in neo-liberal free-market ideas, even as these get discredited in the developed capitalist countries because of their contribution to crises, instability, destruction of wealth, inequality, and undermining of social cohesion.
As the economics Nobel for Paul Krugman demonstrates, heterodox ideas questioning market fundamentalism have again become respectable, and many conservatives now want state ownership and strict regulation of banks, transportation, telecom, and oil and gas.
Many mainstream Western commentators are already declaring "the end of conservative dominance" in economic policy-making. British Prime Minister Gordon Brown is calling for a new Breton Woods conference to renew global economic institutions, and numerous governments are nationalising chunks of private banks.
Many South Asian conservatives continue to play down neo-liberalism's loss of legitimacy. They live in a time warp and will inflict more pain and suffering upon us. The quicker we get them out of the warp, the better for all of us.
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