Thursday, March 01, 2012

AIRLINES IN THE NEWS - INDIA 2012 VERSION


The earlier blog was published in 2006 and available on this link HEREThis is an updated version of the same.

Airlines make news for all kinds of reasons and lately it is all for all the wrong reasons. Airlines Worldwide are having problems compounded by rising fuel prices. Airlines in India, however, face a multitude of problems starting from the promoters own fault of improper business plans and setting out in a business that has generally a very low tolerance for mistakes of any kind to a regulator who believes in reacting to situations than action to prevent something from happening and the problem carries on to poor planning, high cost of fuel, irrational pricing and as one can see, it starts becoming one long endless list of woes.

Now, coming to the story in India, people who made claims that their Airline will make profits from the first year of starting operations, face heavy losses, if one cares to remember flamboyant Liquor Baron Vijay Mallya’s statements when they first launched their Airline. It’s not good times for them or their competition, even though the Indian market has grown tremendously and is set to grow at a rapid pace further.

I don’t claim that I was the only one who saw it coming when I made those predictions in 2005/06 (and got a lot of flak for it back then), about losses in aviation and the need to merge, consolidate and all that, there were a few others, but industry captains at that time were quite smug in their attitude. Not too many of the so-called experts whose sound bites get recorded from time to time in India predicted a bloodbath in terms of red ink. I did, but got ink thrown at me for being overly negative in outlook. Now fast forward from 2005/06 to 2012 and I am clearly vindicated. I never wished something bad to happen, only saw that the learning curve that the Airlines in India were starting on was something we had all gone through and seen in the West. Now who listens to free advice?

One of these Aviation expert organizations even gave away awards for Airlines as being the best in terms of glitz, glamour, quality of service and so on. Of course surveys were conducted using passenger’s feedback and that too in the era before IndiGo came around and offered on time reliable service. Pamper a guy and he'll love you. Ask him about management of the Airline, ground operations chaos, technical deficiencies and he'll give you a blank look. No wonder die hard Kingfisher fans feel let down by their favourite Airline’s dismal performance. Pampering your customer is good but how about running a profitable company? How about getting an award for being the most profitable or even barely viable Airline of the year? First prize goes to so and so Airline for making ends meet. That would be good. I had said in that 2006 Blog that there would be no Airline in India that can claim this prize at the moment. That was before IndiGo started and now quietly going about their business for expanding their fleet and network across India and a few International sectors.

The Captains of the industry only saw roses or fooled the public into thinking that way and made money out of them. Case in point Jet Airways Initial Public Offering priced at Indian Rupees 1250 (was it) and the share value is now down to less than half the IPO amount. This is what I wrote back in 2006. JetAir stock price today in Feb 2012 is approximately Rs.306!  Even less than I had thought it would sink to from its lofty IPO offering that was lapped up by investors. I was one of the few holding a red flag and no one bothered.

Here is a paragraph I wrote in 206 that still holds good, mostly, even now: “Sure there are genuine problems of tarmac space; congestion in the skies, antiquated air traffic equipment and systems, ill-trained foreign (chaps who can't speak English well enough to be understood by ATC) and Indian pilots (who can't land in Delhi in fog because they are not suitably trained), add the lack of quality middle and upper management and the masala becomes a dangerous mix. Add to this broth, the offering of free seats, deeply discounted cheap tickets, free gifts, low cut blouses and short skirts and you’ve got the public salivating and traveling in larger numbers than ever before. Good for the common man and he should make the most of it while the party lasts”. Cut to 2012 and apparently the party is over for many players! Air Deccan is long gone and so is Air Sahara. The party animal, King of Good times Kingfisher, moves from the edge of the precipice being held back  by a single strand of hair.

I wrote this in 2006: That’s when mergers and consolidations become a necessity, and I still predict some large scale bankruptcies that will leave a lot of employees and others high and dry. People who you see on TV sporting large smiles and making outlandish predictions will get out of the business, surely they are packaging the business to sell- cut to 2012- I said this of Kingfisher Airlines who is now banking on foreign Airlines to come in an pump in fresh equity.

I said in 2005/06: “Airlines in India have already consolidated in one way. They have formed a lobby of sorts. Long term scenario? Let’s see now. I'l close my eyes, pretend I am a soothsayer and predict that a couple of Airlines are going to go down (as in closing down, don’t want to scare the reader), a couple of them being sold off and a few mergers happening. Result will be that the fare paying passenger is going to have to pay more money, that’s for sure. In any case, running an Airline below cost (or any other business for that matter) is not viable. Don't need to be an expert to say this”.

Also in 2006, I wrote: “There’s another curious activity going on these days that’s also making news. Financial companies, investment firms and other corporate types are buying up small equity shares in some of the Airlines. I don’t know why and some seem keen on picking up larger equity. I don’t know who is advising these guys and I’ll bet there is an army of CA’s and MBA’s in ties involved. Oh, I did hear some sound bites from the “experts” about this and they were saying: “these are very positive a signs indeed, signs of maturity, such an investment lends credibility etc etc” and all that hogwash these guys come up with. And they get paid a mint, mind you, to say all this rubbish”. Remember the late 90’s when over a hundred chaps in ties converged on Damania Airways and the Airline was taken over by NEPC Airlines in what was then termed as the “fastest Airline take over in the history of aviation”. Remember that? What the business magazines, newspapers and TV’s forgot to mention later was, that this was also perhaps the “fastest Airline to go down the tubes after the takeover in history”. Leave the suits and ties chaps who came out Biz schools out of this, they don’t understand aviation. You don’t wear a suit and sit in an office and learn about aviation”.

I come back to the present day and can’t help feeling despondent about what I wrote back then 5-6 years ago. I am not happy at being proven right. Anyway, moving forward, here are things that I see currently happening. Indian Government, after a long stupor has decided to favour some players and permit foreign Airlines FDI in Indian aviation. They have also decided to let go of their Oil companies monopoly to help Airlines import fuel directly and avoid paying taxes. Are these moves going to help? I am left wondering about it too. While these are factors that may help bottomlines, I still don’t see anything but an erosion of values in the Industry.

One can throw freebies and incentives one after another to help the sector but fundamental changes need to take places, starting immediately by professionalizing the DGCA into a Civil Aviation Authority. The Airlines have to go back to the drawing board and put a practical business plan together, one that will help them grow and consolidate steadily instead of a mad ego driven rush to topple so and so from the top of the leader board. Pragmatism must set in. A fundamental shift in the sector must take place. Innovation must be a driver in this endeavour. I see some of them doing this, like IndiGo. Rest of them, including state owned Air India is sleep walking as I see it. Unless they re-invent themselves, Airlines like Kingfisher and others will keep afloat only by kicking the can further down the road. And that is never a solution for an Industry with wafer thin margins. Let us hope that the aviation sector in India and elsewhere have Happy Landings in the future, in the near future. We can only hope. 

12 comments:

Anshika said...

Sir,

This is with regards to Hyderabad Air Show,The show commences on the 14th of March till the 16th of March 2012 at the Begumpet Airport in Hyderabad.

Im writing to you on behalf of Airworks. Just wanted to check if you are planning to visit the show.

Regards,
Anshika Mehta
Avian Media

Capt. Anup Murthy said...

Anshika, I was at the Singapore Air Show on all trade days since we are located here. I blogged about the Singapore Air Show at this link, my company blog actually: http://jeteezy.blogspot.com/2012/02/singapore-air-show-post-show-blog.html

As for planning to visit the Hyderabad Air Show, it is on my calendar to attend but haven't made arrangements as yet because of a many pending travels in this region that depends on appointments. I hope to have things clear by early next week.

Anshika said...

Sir,

This is with regards to Hyderabad Air Show,The show commences on the 14th of March till the 16th of March 2012 at the Begumpet Airport in Hyderabad.

Im writing to you on behalf of Airworks. Just wanted to check if you are planning to visit the show.

Request you to kindly revert and confirm about your presence at the show.

Regards,
Anshika Mehta
Avian Media
9953227612

Capt. Anup Murthy said...

Anshika, I am unable to make it for the HYD Air Show this time. Thanks for asking.

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James David said...

I also find your blog interesting. From a projection way back 2006 to what has been happening to Indian Aviation nowadays. The articles you wrote is controversial for the Indian Aviation before(and still) and some do not believe that it will happen but it's now happening. Your passion and your expertise in aviation made you come up with that projection. Quite impressive!Keep posting more blogs like this.

James David teaches people how to buy single engine airplanes & has a passion for the Cessna 177

Capt. Anup Murthy said...

Thanks James, however I do sometimes find myself dejected at what I write..while I want to be objective and detached, one does feel despondent at what's going on in Indian aviation..while everyone just focuses on the potential, no one is talking much sense in operations and indeed infrastructure. Thanks for visiting, nice to know that you teach how to buy single engine airplanes..I have done a bit of time decades ago in a 177..these days I am having a good time flying the Lake 250 Renegade off the water..cheers!

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Airlines said...

This blog is very interesting and enjoyable to read.

Regards.

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Bureau said...

The Indian Airlines Sector has been going through a strong stage over the previous several decades facing multiple headwinds – high oil rates and Limited pricing power contributed by industry wide over capacity and periods of subdued demand growth. Over the near term challenges facing the airline operators are related to the high debt problem and liquidity constraints - most operators need a significant equity infusion to effect a significant improvement in the balance sheet.
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