Is Govt. clipping AI's wings?

By Gargi Parsai

NEW DELHI, JUNE 1. Is the Government acting against the interests of Air India and Indian Airlines by giving away all the capacity entitlements under bilateral air services agreements to mega carriers such as the United Airlines, the British Airways, Lufthansa and Singapore Airlines when its own carriers are unable to utilise new capacity on account of old and limited fleet?

Air India and Indian Airlines are the designated carriers for India to service reciprocal bilateral agreements on traffic rights.

This controversy has erupted in the wake of the suspension of Mr. Michael Mascarenhas, former Managing Director of Air India, while the disinvestment process is on.

In the case of Air India the procedure of due diligence has recently been concluded, while Indian Airlines has just thrown open its data room to the two bidders, Videocon International and the Hindujas.

The pro-disinvestment view is that allowing foreign carriers to pick up passengers from India while keeping the fetters on on the Maharaja is the best way to ensure that the flag-bearer carrier is devalued before disinvestment.

On the one hand, the Government allowed foreign carriers to enhance their market share even after the disinvestment plan was announced and, on the other, Air India was prevented from expanding and enhancing its capacity to utilise the new opportunities.

The airline had to withdraw from important European routes and concentrate its capacity in the Middle-East, competing for a piece of the cake with our own Indian Airlines.

Government policies have not allowed Air India to grow. Though plans were afoot for over 10 years, the airline was not given a free hand to acquire aircraft.

Even at the height of the aviation turbine fuel crisis last year, the airline was not permitted to hedge for fuel in the international market. Had it not been for the fuel price hike, the airline claims, it would have made a profit of over Rs. 150 crores last year, despite its limitations.

The misgivings notwithstanding, the airline's lack of capacity has hit the Indian tourism hard at a time when there are projections of a 10 per cent growth in this sector in the next decade.

It is also believed that the fastest growth in the aviation sector will take place in Asia, particularly South-East Asia, India included. With India poised to take off in the IT sector, tourists, business travellers and NRIs came up against low capacity/connectivity, offloads, delays and even cancellations.

Therefore, after a virtual freeze of two years, the Government went in for signing bilaterals for enhancing in- bound and out- bound tourism, and under bilateral friendly relations with countries such as Kuwait, Austria, Hong Kong, the UAE, Kuwait, Oman, Yemen, Yugoslavia, Uzbekistan and Turkmenistan.

Under pressure from the U.S., the U.K., Germany, Singapore, Austria etc. for revision of bilaterals, the Government has steadily enhanced capacity. With its limited fleet, all Air India gained was code-share (under which two countries can use a single aircraft while displaying flight numbers of both airlines) or block seat arrangements (when an airline allows another to sell certain number of blocked seats on its flights).

However, United Airlines, while reviving its round-the-world service between Delhi and the U.S. from April 1, did not announce the renewal of its code-share agreement with Air India. Under an old pact with the U.S., its carriers can operate unlimited capacity between India and the U.S., which Indian carriers are unable to reciprocate.

India has so far entered into bilateral pacts with 96 countries, out of 185 which are signatories to the International Civil Aviation Organisation. Of these, 51 designated airlines of 47 countries presently operate scheduled air services to India, while 49 countries do not utilise their rights.

Air India and Indian Airlines utilise their entitlements to only 33 countries, of which 10 are code-share commercial arrangements. Thus, out of a capacity of 34 million seats, about 17 million are being operated out of India.

The Ministry of Civil Aviation has explained the vigorous signing of bilateral pacts to the fact that in 2000, the average seat factor in major airlines was more than 70 per cent and passengers were being offloaded due to over-bookings and heavy demands. (Although some allege this was a pretext on the part of interested airlines to pressure the Government into revising bilaterals).

Demands on the U.K., Germany, the U.S., the Gulf and South East Asian routes were heavy. Under such circumstances, the utilisation of capacity entitlements by Air India and Indian Airlines was merely 38.7 per cent and that too mostly to the Gulf.

The Government has also categorically stated that the bilateral rights of Air India will continue to be available to the successor/strategic partner of Air India. Secondly, the unutilised rights of Air India have been offered to a few airlines such as Virgin and Malaysian Airlines under commercial arrangements and would come back to the Indian carriers whenever they are able to utilise them.

This does not look like it is meant to hurt Air India, although the airline has lost valuable market share. On the contrary, some see in this a strategy to help out the two bidders in the fray for Air India - the Tata- Singapore Airline consortium and the Hindujas, not to forget the fact that Jet Airways is knocking at the door of the Government to let it be a designated airline for the country.

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