THE MUCH– touted Open Sky policy was to usher in the glorious age of Indian aviation.
There would be cheap and efficient airports with an array of choice of low cost carriers. But we appear to be repeatedly mired in problems and the aviation sector remains stuck.
A few rich billionaires have cornered the Open- Sky policy. We need an urgent course- correction and not temporary band- aid. Like telecom, the aviation sector has also given a severe dose of bitter medicine to the Indian consumer.
The issue of predatory pricing has once again lifted the curtain from the mess which cannot be hidden with slick public relations stunts. You cannot have Low Cost air travel with high cost noncompetitive airports, and a cartel of airline companies. The Government is very poorly equipped to tackle monopolies. All that the Competition Commission of India ( CCI) has done is to write to the Civil Aviation ministry that the airlines may be operating as a cartel.
Problems
The problems have arisen because, first, new private airports were largely built with User- Development Funds paid by passengers with little investment by private operators who bagged the permits.
The media played up the 7- star like looks of these airports. But we have to pay 7- star prices, which jacks up the cost of air travel. You cannot have Low- Cost travel from 7- star airports. World- wide, large cities have multiple airports, which create room for low cost fliers. But in India, the Open Sky policy has created a system where for the next 60 years, a second airport cannot come up anywhere within 150 miles of the current one. One cannot expect costly private airports to charge low rentals and now passengers are being bled. The public is being held hostage to costly airports.
Second, the Airport Authority of India has ceded total control to private airport operators. In September, 2010, the 4 private airports of Delhi, Mumbai, Hyderabad and Bangalore accounted for 5.72 million passengers as against the two government airports of Kolkata and Chennai totaling 1.70 million passengers.
This means that private high- cost airports control nearly 70 per cent of all major traffic.
Third, Air India which acted as a buffer against the predatory pricing and exploitation by private airlines has been emasculated, either by design or otherwise.
As Air India was operating widely, private airlines were mindful of their ticket pricing. The direct beneficiaries of
Air India's diminution are the private airlines, which now have a free hand at cartelisation and un- fettered exploitation.
Fourthly, private airlines have obviously come to informal agreements to compete as little as possible. You will find that their flights do not clash on less commercially dense routes and on metro- routes, they carefully schedule timings and number of flights. It is as if they belong to one holding company.
Fifth, private airlines and airport owners dominate and over- awe regulatory officials of the Ministry. Just as TRAI was helpless before private telecom giants, the Ministry and agencies like DGCA, AAI, CISF are helpless. No official dares initiate any action. Even the predatory pricing issue was taken up after the media raised it. The Ministry was a silent observer. But even when they raise issues, they couch it with velvet words claiming they have no power, only the ability to persuade. The lure of postretirement jobs is also a strong incentive to keep quiet and cooperate.
Voodoo
George Bush Sr. famously coined the term " voodoo economics", meaning poor economics. The Ministry's reaction to the predatory price- fixing by airlines is pure " voodoo economics". Any undergraduate economics student can tell you the following — The price of goods in market economies is determined by demand and supply. Shortage pushes up prices and automatically, supplies will be increased to meet demand. Then prices fall. That is how the Open Skies policy of the government is supposed to operate. Now we have shortage of plane seats and airlines do not talk of increasing flights. They only talk pricing. Neither is the government demanding flights be increased. This itself is a distortion of the entire Open Skies policy and its theories. If the number of flights are increased even marginally, prices will fall. Obviously, the Government is in some manner conniving with private airlines. At one time, there was genuine competition and pricing was competitive. But now there must be collusion since flights have not kept pace with demand. This is a situation of imperfect competition.
Airlines offer some tickets at low prices to comfort public opinion that tickets are very cheap, provided you plan travel ahead. But after a few tickets are sold at low prices, airlines jack up prices astronomically.
You can travel from Delhi to London and back for the price of a oneway economy ticket from Delhi to Mumbai.
And the Government says it was unaware of this predatory pricing? About 6 months ago, the divergence between the cheapest ticket and the costliest was about 400 per cent. Now, the range varies from 1200 to 1500 percent.
Collusion
Instead of arranging more flights, either through airlines or getting foreign charter airlines to meet the demand, our government intervened in a strange way. The government says that the prices of tickets sold should not exceed some figure.
Airlines will heed that demand. But then, how many seats will be available at low prices, and how many at the highest possible limit? Monopolies and cartels operate in such a way that the airlines will maximise revenues by ensuring that most tickets are sold at the highest price limit. The consumers will suffer as they have fewer lowpriced tickets and fewer flights to choose.
In fact, the government is helping airlines maximise revenues. Airline owners are feigning grief when they are actually jubilant, because the government has not insisted that supply be increased and more flights organised.
The government and private sector know fully well that demand exceeds supply.
Good market economics should mean that private airlines operate more planes and meet demand. But when there is a cartel, there is no need to enhance supply. The Ministry of Civil Aviation is not naïve and can direct Air India to start operating wet- charter flights on metro routes. Private airlines will then immediately get more planes themselves or they will lose market share. But as long as the government observes this conspiracy of silence on more flights, the public will be exploited. No middle class person can fly to meet urgent personal emergencies now.
Since the Open Sky policy of the government has been subverted into a cartel the on- going aviation scam involving airports and airlines is as bad as the telecom scam. The public will suffer for decades due to faulty decisions. But the government can still rectify the long term devastation that will visit the aviation sector.
There can be Low Cost Airports and more entrants in the airlines sector; after all, how can there be Low Cost air travel without Low Cost Airports? The Telecom Scam was done clumsily. But aviation is slick all around.
