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Figure 1: Yes, THAT Rs. 10 extra that IndiGo makes per ticket is the answer to profitability.... Not
We agree with the opposing team when we say that the need of the hour is to take immediate steps to make the aviation sector streamlined and more efficient. How do we do that? One word: COMPETITION. Competition is about weeding out the weak and inefficient and only having room for the survivors. Competition spurs improvement, breeds innovation and is the only reason that corporations ever evolve. Why leave it to the existing bunch or the officials or the government to try to streamline the sector when competition would help to do it anyway at a much lower cost? Figure 2: Clearly, someone forgot to mention to them that airlines make HUGE losses. Oh, and did you notice that this was the USA post-recession? All the points mentioned by our opponents to improve the existing fleet of airlines is just the corrective action needed to steady the ship. And many of them are in the hands of the government anyway who seem to be finally waking up. Some of the corrective measures unveiled by the Civil Aviation Ministry last year only are as follows: - Direct import of ATF to offset the high sales tax imposed on it. - Maintenance, Repairs and Overhaul' (MRO) operations included under the airportinfrastructure category, in a view to facilitate external commercial borrowings (ECB)for the sector - Extension of duty-free period for parts and testing equipments imported forMaintenance, Repairs and Overhaul (MRO) from three months to one year. All these steps if taken up by the current crop of airlines would only incentivise more players to enter the sector whether through joint ventures or independently. Post that is where the real challenge would begin – catering to the growing air traffic both domestically & internationally, existing hubs as well as new routes, the list is long. And this is where our industry stands to get exposed if we don’t get new players in. The threat is real of the gap between demand and supply going unmet. In short, new blood would definitely help to clean up the airline industry, but it must be argued whether that will also be sufficient. The industry has a number of problems plaguing it currently such as the high ATF costs incurred, the outsourcing of MROs (which could become attractive if more airlines were involved) and the enormous amount of taxes paid. A few positive steps from the Civil Aviation ministry and the entry of these new players would only help to further stabilize the industry in the long run by forcing firms to become more cost-effective or risk their market shares being devoured by the next airline that comes in line to usurp the iron throne for the Indian skies.
