AIRLINES IN THE NEWS AGAIN:

Airlines make news for all kinds of reasons and even if they are small ones, they get the kind of exposure that even large manufacturers of other products don’t get. It is a glamour industry after all. Underneath it all, there’s very little glamour and a lot of red ink on the bottom line, be it an American, European, Asian or any other carrier of any other nationality. There are some exceptions and they are just that - exceptions. These include Gol in South America, a low cost, low fare Airline. Also add to this mix, SouthWest in the United States, Ryanair and EasyJet and a couple of Asian ones that are not listed on any stock exchange and hence difficult to verify whether they are as profitable as they claim.

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. 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. So how come no one is making money? Not one, none, zip, zilch, nada. In fact they are losing in buckets. Well, there are many reasons for this and I have put in my two bit a few times before and other “experts” in the field will be quick to come up with fantastic quotes and theories about the subject.

Airlines are also making the news for other reasons too. I had been talking about mergers, acquisitions, Airlines in India slipping into the red, consolidations and all that, at this time last year. When I wrote 2005 Aviation year end review and a few more articles after that, I had predicted that such things would happen and in fact it has become the order of the day. Let’s not talk about the major Airlines in the US that are merging or talking about some sort of consolidation. Let me just talk about India for the time being.

I don’t claim that I was the only one who saw it coming last year, 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 gung ho 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. One of these expert organizations even gave away awards for Airlines as being the best in terms of glitz, glamour, quality of service, blah, blah, blah. Of course surveys were conducted using passengers. Smooze 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.

Smoozing 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. There would be no Airline in India that can claim this prize at the moment.

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. Look at any other Airline, and they are struggling.

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. And it ain’t gonna last long. Why? Again, many reasons for it and also the fact that all of these guys fly to the same few Airports in India. Air Deccan being the exception because their larger reach into secondary towns and airports using turboprop Aircraft. Now Indus in the North wants to do the same except that they will use regional jets. Good luck, because it ain’t gonna work.

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. As I had mentioned previously and keep saying this, there are already some moves for consolidations, even small carriers such as Indus (never heard of them? Don’t worry) is tying up with Air Sahara, already tottering on the edge themselves.

An example of a merger going bad: Jet Airways went through a costly exercise of trying to acquire Air Sahara and calling off the wedding at the last minute. I daresay Jet actually gained from the annulment even if it meant that they would lose a lot of money. If that merger had taken place, Jets bottom line would have become deep purple (apologies to the band), forget red!

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.

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 take over 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. That ain't gonna happen.

A friend of a friend recently commented that the Airlines may actually be profitable but are probably showing losses to avoid taxation. I wanted to shake him badly to wake him up. It does not take a rocket scientist to do the math on the revenues and expenditures. I’ve done the math and such works as feasibility studies for Airlines overseas too. And it is just plain silly to underestimate the clever Indian taxman. Avoid taxation? Good joke.

To the flying public, I say, go fly. Go everywhere you want to go. Because you can afford to do so, at least for now. Like I said before, it ain’t gonna last. Happy Landings.