Airlines can survive profitably

In India, over three decades, the promoters of private airlines have been publicly and brutally murdered, charged with fraud and money laundering, and fled the country as economic fugitives. These factors may explain the reasons for the demise of some of the most successful and dominant aviation firms. Even so, critics assign business and operational reasons each time an airline faces an existential crisis. There are analysts who argue that the sector is capital-intensive, and a tough one to operate in, with an extremely high failure rate.

As IndiGo loses its credibility and reputation, with delays and cancellation of thousands of flights, the talks about the challenging business aspects behind the repeated failures of the so-called best airlines in India since the 1990s are back in the forefront. High costs, regular and unexpected fluctuations in recurring expenses, and high-voltage regulatory and policy changes inculcates an innate propensity to incur massive losses. But these are more like myths. Across the world, like most sectors, the aviation industry witnesses several failures, and repeated successes. Many survive for decades.

Yes, like in India, there are those that go down due to poor management, and sometimes because of sheer bad luck. By and large, good management, efficient operations, focused marketing and pricing, and strategic and tactical route and aircraft selection enable several global airlines to remain consistently successful, profitable, and dominant players in specific markets for decades. There is no better way to explain this pattern than the US market. In America, a typical private airline, which is a market leader either region-wise, market share-wise, or price-wise is almost 100 years old.

Of a myriad of airlines, the top five airlines in the US are American Airlines, United Airlines, Delta, Southwest, and Alaska Airlines. There are dozens of small operators, but the above five account for the bulk of the market share in that country. Of these, Alaska Airlines has been around for 90 years. If you look at the low-cost carriers, Southwest Airlines is the youngest, and has flown for six decades. No one can argue that these airlines have survived, and been profitable for most of the years they have operated for.

Of course, several airlines in the US, like other nations, have faded, and floundered. But this is the nature of the game in most sectors. However, the reality of the survival of many airlines for several decades indicates that the failures are not sector-specific, but airlines-related. Aviation firms crash not because they are in the aviation sector. They do this because of the factors related to management inefficient), luck (bad), and inability to change rapidly with the times to keep in tune with the changing needs.

One can always argue that America is the wrong example. It is possibly the only nation that is vast enough, both in terms of geography and population, to ensure the survival and profitability of private airlines, and private auto firms. No other nation perhaps displays the propensity for auto and aviation dominating the roads and skies at the same time, and to the same degree. This is, of course, partly true, as the scenario allows aviation to coexist with road vehicles, and train travel. But it is only partly true.

Let us travel to Asia to see what happens in less-mature nations. Let us start with China. As everyone knows, it is a communist dictatorship, which has absorbed capitalism as its role model when it comes to the economy and business issues. Close to four decades ago, the nation broke up the monopoly in the aviation market, and created several new airlines that competed aggressively. Today, the sector includes Air China, Shenzhen Airlines, Hainan Airlines, China Eastern, among others. Most are just under 40 years old.

Although they are not old as some of the airlines in America, an existence for four decades is a better survival performance compared to India. (In India, the state-owned Air India, and Indian Airlines survived for decades due to the Government support, and were later merged, and privatized.) What is crucial about China is that despite the recent privatization, it has emerged as the second-largest aviation market in the world. Most of its major airlines have grown over the decades, and remain profitable, with efficient operations.

It is a similar story in Russia, another communist dictatorship until nearly four decades ago. Aeroflot was the monopoly airline in the old days. Since the market reforms, and more democratic influence (it has become authoritarian now) several private players cropped up in the nation, and these include the low-cost carrier, Pobeda, which seems to be doing remarkably well. In Brazil, where aviation has had a more checkered history than in India, China, and Russia, the airlines are older. Like in many nations, the aviation firms have vanished, and the better ones, or the better-managed ones have been around for decades, possibly more than five decades.

Brazil has its low-cost carrier, Gol Lynda’s, which was launched in 2000, and which seems to be doing well. It is evident from the experiences in both developed and emerging markets that there is nothing unique about the aviation sector. Airlines can exist for decades, even a century. They can remain profitable, and viable. Even the low-cost carries perform admirably despite the challenges. What separates the survivors from the rest are other factors. Good firms do well, and bad ones close, or go bankrupt.

Obviously, similar rules apply to the other sectors such as steel, pharma, auto, aluminum, and textiles. Given this global context and perspective, it can be argued that what one witnesses in the Indian aviation sector is not the norm. It is unique. One of the factors that can explain this is that since the beginning of private aviation, it was besieged by interferences from the mafia, and highly-influenced by corruption among some of the players, as well as the regulators and policy-makers. Promoters were possibly interested in lining their pockets, or those who monitored and regulated them.

In addition, airlines became a sector that massaged the ego of the flashy businesspersons, and led to arrogance. Firms that performed well, and gained market shares felt that no one could stall their expansion. They went on a buying spree for aircraft without an adequate analysis of where they would be deployed. Couple this with the fact that most of the domestic, and global routes (that originate and end in India) are not profitable. Only a few are, and everyone wants to only fly these viable routes. Even the airline that has a dominant share wants to fly more planes on them.

The author has worked for leading media houses, authored two books, and is now Executive Director, C Voter Foundation; views are personal