Open Skies As Long As You're Indian Airlines

Private carriers struggle as Delhi heavily favors its own

When India announced its version of an open-skies policy four years ago, a handful of private carriers were expected to overtake the government's lumbering monopoly. Travelers were fed up with delays and substandard service on Indian Airlines and its international counterpart, Air-India Ltd. Half a dozen startup airlines took up the challenge, pouring millions into making flying in India cheaper, more competitive, and more hassle-free.

But for the most part, it hasn't happened. Although private carriers took off fast, grabbing 40% of India's market early on, government rules aimed at protecting the money-losing monopoly are driving the private airlines from the sky. Earnings from their small fleets are not enough to cover the costs of fuel, leased airplanes, spare parts, and taxes. Two of the biggest carriers, ModiLuft Ltd. and East West Travel & Trade Links, are virtually grounded by financial problems, and two others are struggling under heavy debt (table). Only Jet Airways India Ltd., which is 40% owned by Malaysian Airlines Systems and Kuwait Air, is thriving. Air-India maintains the international monopoly.

The Indian government is making it tough for the upstarts because it is "obsessed with the protection of the public sector," says Denzil Keelor, a consultant who has worked for the Director General of Civil Aviation. Adds Gopal Jain, research vice-president at VLS Finance: "Indian Airlines has an extremely loving parent in the central government."

One major gripe for the private carriers is long delays in getting permission to expand. ModiLuft, which had a tie-up with Lufthansa until the German airline withdrew last spring, waited more than 18 months for permission to bring four planes to India. Similarly, India's powerful Tata Group has been seeking permission for more than a year and a half to start a $518 million joint venture with 40% equity from Singapore Airlines. Such an airline could quickly become a market leader. So far, however, the Civil Aviation Ministry has refused to approve the proposal.

To make matters worse for the carriers' bottom line, authorities have raised navigation fees and charges for landing and parking aircraft. At the insistence of Indian Airlines, the government also forces private airlines to fly unprofitable, low-traffic routes as a condition for operating between major cities. V.K. Sharma, director of operations at small, struggling Sahara India Airlines Ltd., says private carriers, with their limited financial resources, need time to generate revenue before being forced to fly to remote areas. "The government has declared an open-skies policy," says Sharma. "Now they have to declare an open-mind policy."

Indian Airlines officials deny the government has deliberately stunted newcomers' growth. They blame the private companies' financial woes on bad management by amateurs who had hoped to make quick money without understanding the industry. "It is stupid to run an airline with three planes," says Shakti Lumba, executive director of Alliance Air, a subsidiary of Indian Airlines which flies secondary routes.

WAITING LISTS. Off the record, aviation officials admit that politics has prevented full opening of the skies. The right-wing, Hindu-nationalist Bharatiya Janata Party, for example, threatens to fight any new foreign investment in airlines. Sensitive to such pressure, India's weak 13-party ruling coalition has not pushed liberalization forward. Long-promised guidelines for a transparent investment policy for civil aviation have yet to be released. "The government doesn't want to commit itself," Keelor says.

The irony is that most analysts believe India has room for at least two or three major carriers. India's domestic air traffic is increasing rapidly, by at least 10% each year. Executive-class seats are already hard to come by, and during tourist season the waiting lists are long for economy-class seats as well.

But the tide is clearly against newcomers. Indian Airlines, despite losing $306 million over the past six years, is improving service and luring back many of the 260 pilots and engineers who defected to private carriers. "Indian Airlines is offering us job security," says pilot Digvijay Singh, who left ModiLuft to join Alliance Air. "With the private airlines, you never know. One day you're flying, one day you're not." The same might be said for India's open-skies policy.

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