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Grounded on the runway

Vijay Mallya saw too late that Indians' approach to flying was 'get me from point A to point B for as little as you can, preferably on time'. Chanakya writes.

columns Updated: Oct 27, 2012 20:57 IST

Kingfisher Airlines (KFA) reminds us how nasty, brutish and short life can be in the Indian skies. Only Jet Airways has survived from the first generation of private airlines that took wing in the mid 1990s, the rest either shut shop or were bought over. At the turn of the century, a former helicopter pilot and silkworm farmer in Bangalore discovered his billion at the bottom of the pyramid in the astounding number of kilometres Indians travel by train in a year.GR Gopinath figured out a way to convert a fraction of those into air miles by giving a few tickets on his airline, Air Deccan, away for free. That got the small businessman in Belgaum hooked to flying and other entrepreneurs started taking notice. One of them was India's flamboyant liquor baron Vijay Mallya.

By the time Mallya launched KFA in 2005, a flight on no-frills airline would cost slightly more than a train ride. At the margin, ferrying a person by air can be as cheap as by rail or road - the break even price of Rs 2 per km is a shade above the cost of air-conditioned train travel. The 24 million Indians who flew in 2007 realised this, as did airlines targeting the 19 million people who took a train every day that year.

But Mallya thought different. He wanted all the bells and whistles of an airline: top of the line in-flight entertainment, gourmet food and models as airhostesses. All of which cost money. This was his first mistake - KFA was a costly airline to begin with.

Next came the competition. Every airline at this time was leasing aircraft to build market share. Kingfisher and Indigo were the most aggressive. Mallya had his eyes set on Naresh Goyal's Jet, the market leader which already had a big fleet flying. Indian Airlines and Air India, too, were buying new aircraft. Business was good for Boeing and Airbus, which saw India as the big market after demand had plateaued in China.

The three full-fare domestic airlines - Jet, Indian Airlines and KFA - had built up so much capacity that one in three seats was flying empty. Air fares had not come down far enough to convert more train travellers, although budget carriers were doing brisk business. It was obvious that one of the three airlines would cease to exist. This was Mallya's second mistake - he tried to grow too fast.

Goyal saw the writing on the wall and acquired Air Sahara, the last of the first-generation airlines. Mallya kept on losing more heavily than Jet but less than the State-owned carriers. The government had unlimited taxpayer money at its disposal to pump into Air India and Indian Airlines, Mallya had United Spirits, a clutch of mansions, yachts and, later, a Formula 1 team.

The King of Good Times saw only too late that Indians' approach to flying was 'Get me from point A to point B for as little as you can, preferably on time'.

Indigo was doing it and steadily gnawing away at market share. Yet Mallya bought Air Deccan not so much as to get into the low-cost end of the business as to use its permit to fly abroad on Jet Airways' tail. This was Mallya's third mistake - he bought Air Deccan for the wrong reason.

And then Lehman Brothers collapsed. Airlines anywhere in the world are highly susceptible to business cycles. Ours are more so. The losses they piled up in 2008-09 amounted to a fifth of the money that went down the tube for the industry worldwide. Eye-popping for a country that flew a mere 2% of the global air traffic.

Messrs Mallya and Goyal had a point when they complained that taxes on fuel and airport fees bump up the cost of flying in India by as much as 60%. Alongside a policy that did not allow foreign airlines to buy into Indian carriers, this exerted an enormous cash squeeze. Of late the government is bestirring itself, taking up aviation reforms piecemeal. Airlines flying abroad can now import cheaper fuel, but the logistics are daunting. Bilateral route agreements with other countries are open to private Indian carriers. And finally the ban on foreign airlines buying into local ones has been lifted.

All of this has come too late for Mallya. With the regulator suspending KFA's licence to fly, Mallya, who has not yet found a white knight, is unlikely to find one now. Kingfisher has defaulted on its aircraft leases, fuel, loans and wages. Banks are left holding a stake in the airline that is not worth a tenth of their collaterals. Mallya's troubles must serve as a wake-up call to other airlines and the government. Indian aviation faces challenges from the deteriorating external environment as well as the teething problems of a young industry. The country's last aviation policy was drafted in 1993, the capital and infrastructure needs of the industry have multiplied since then. Some consolidation is inevitable, even welcome, but it is not in the interests of the Indian flyer if the sector buckles under a mountain of debt and losses.