Look who’s crying again?

In my recent post I had stated that the joint action of the airlines in India to increase their fares together was prima facie illegal and unfair practice under MRTP. I was happy to read that MRTP is taking immediate action to investigate the matter. Of course, Aviation Minister Praful Patel also issued a warning but we all know what value that has considering his soft corner for his freind Vijay Mallya. I am also happy to hear that Jet has decided to wear the proverbial “pants” and reversed its decision to increase prices and disaasociate itself from the illegal act.

In my earlier post, I had also mentioned that I believe this whole illegal episode was most probably started by Kingfisher. The tariff war was getting hot as the full service airlines were fighting for their share with the low cost airlines. It was reported that Kingfisher started crying foul that the fare war would leave the airline industry into trouble. It is said that Kingfisher also approached the government through informal channels to voice their concern about low cost carriers like Spicejet, IndiGo and GoAir adopting unrealistic prices. Now this is what a Kingfisher official had to say as reported in Economic Times on 5/2/2009, “These fares (low) would spoil the sector and leave the industry sick. We have taken the issue at every level. Besides informing the ministry of the unwarranted development, we have also discussed the issue in the Federation of Indian Airlines (FIA) meeting.”

In the same article, the low cost airlines are blaming the full service airlines. In the same article, a budget airline official is quoted as saying, “Its actually the full service airlines which have lowered fares to an unrealistic levels. If they claim to be fove-star or seven-star airlines of the country, I don’t know why they are selling tickets at dhaba rates.” I think what this guy is saying is also logical.

It is a well known fact that fight for market share based purely on price is a no-win situation. I agree with what Kingfisher is saying. But this what everybody says when margins are reduced. In every business there is cut-throat competition these days. Sunil Bharti Mittal could say that it was unfair on Reliance’s part to reduce prices. Some one in the beer industry could say that Kingfisher should raise prices. But then maybe Vijay Mallya forgot what competition was all about. I think Vijay Mallya has operated in a controlled liquor industry and therefore not faced the kind of competition he is facing now. He has also got out of the newspaper business or is getting out.

The solution that Kingfisher is looking for does not make sense, that is, either form a cartel or allow the government to control prices. The competition will decide the prices and who survives and who does not. There is a famous saying, “If you can’t stand the heat, get out of the kitchen” which I think Vijay Mallya should think about.

The Kingfisher official’s quote is sufficient to establish the illegal role played by the Airline in the joint price increase. Vijay Mallya has been forced to compete with budget airlines because the share of low cost airlines has gone up significantly. For instance, Spicejet traffic went up from 2.13 lakh passengers in September to 3.73 lakhs in December while Kingfisher’s dropped from 4.09 lakhs to 3.48 lakhs.

I think all the airlines will have a tough year but creating a panic or adopting illegal means is not an option. I also think Vijay Mallya has to sell some assets to fund the airline for atleast a year or he can cut losses and run. He also has low cost Deccan Air to fight competition with. In any case, he needs to stop whinning and take some hard decisions.

Avinash Narula

Did you enjoy this post? Why not leave a comment below and continue the conversation, or subscribe to my feed and get articles like this delivered automatically to your feed reader.


No comments yet.

Leave a comment