Within the weekend the threatened strike action by the Federation of Indian Airlines (FIA) on August 18th has fizzled out.
On Friday July 31, the FIA members barring state owned Air India, took India by storm and announced they would suspend all domestic flights on August 18th in protest of the vindictive tax policies on the aviation industry specifically aviation turbine fuel (ATF), high costs at airports, and a whole host of other reasons.
The audacity of the move took the breath away of the business community in India. Never before had an industry body taken so militant a step, but the suspension call was doomed to fail.
On Friday itself Air India said it would mount additional flights and could press the high capacity wide bodies like the Boeing 747-400 and 777-300ERs in to domestic service. At the same time the civil aviation minister Mr. Paful Patel issued a stern warning to all the airlines that the suspension would not be tolerated.
It was clear that the government, even the sympathetic Patel, would not do anything to help the airlines with a gun pointed to their head. Any sign of acceptance, even for the most legitimate of reasons, would bring forth a swarm of demands from all business quarters. If push came to shove most experts and I felt, that the government would resort to invoking the Essential Services Maintenance Act (ESMA) which would force the airlines to operate.
Aviation Turbine Fuel is most definitely vindictive taxed commodity. For long I have railed against the ridiculous taxation and pricing structure on ATF which is the life blood of airlines.
Civil aviation minister Patel is well aware of this and has been leading a lonely crusade to convince the reluctant minsters of finance Mr. Pranab Mukherjee, and petroleum Mr. Murli Deora, and the various state governments.
Karnataka, the home state of Bangalore Aviation, is one the worst offenders with a ridiculous 28% tax on ATF. This policy has forced airlines to practise tankering on their flights to and from nearby Hyderabad which has only a 4% tax on ATF.
The call for reduction of airport charges is hollow since they are quite reasonable in India on airlines while being punitive on passengers.
For obvious reasons Dr. Mallya raised the spectre of bailout trying to justify on the Air India bailout. The Air India bailout is already unpopular and seen as a waste of tax payer money, Dr. Mallya’s call just broke the camel’s back and even his alliance partner Jet Airways distanced themselves.
Overall, the populace feel the financial problems of the airlines especially the full service carriers Air India, Jet, and Kingfisher, are of their own making, (some of the reasons like reckless expansion and high overheads are covered in my earlier article). This view is reinforced by the fact that value carriers like IndiGo and SpiceJet have returned to profits by keeping a tight reign on their costs enabling them to offer a value for money service thus increasing their market share.
The additional reasons of global economic meltdown and the 26/11 terror strikes in Mumbai which led to a severe dent in tourist traffic also fell on deaf ears since this has affected businesses across the world not just the India and not just Indian airlines. Everyone feels that the airlines who did not have a risk mitigation policy in place, should just suck it up and bear it, just like everyone else.
On Saturday morning, value carrier IndiGo announced that it would operate flights on the 18th, and by evening, SpiceJet was already sitting on the fence. At the same time the ministry of civil aviation ratcheted up the pressure by involving the Directorate General of Civil Aviation (DGCA). Unlike the US Federal Aviation Administration, the Indian DGCA is purely a regulatory body, and airlines know all to well they cannot afford to be on their wrong side.
The final blow came on Sunday with India’s low cost airline pioneer Captain G. R. Gopinath coming on national media and confirming the view that the full service carriers need to reduce their costs and the industry as a whole should further cut capacity. SpiceJet too backed out. With airlines carrying over 40% of passenger traffic not supporting the suspension call, by the evening the FIA was in full retreat.
In my humble opinion the FIA was wrong to call for a suspension of flights in the first place, but having called for it, the FIA should have carried through their call. Instead their half-hearted approach has left them with a PR nightmare.
Their legitimate grievance against high and irrational taxation on fuel has been drowned out, and the hand of their champion in government, civil aviation minister Praful Patel’s hand has been weakened in the on-going battle.
Now the airlines will have to take their begging bowl to a more hostile government as well as a more hostile public.