The Central government’s decision to permit foreign investment up to 49 per cent in airlines is evidently made on demand from loss-making airlines. Air India is the foremost amongst them, but it is unlikely to have asked. For it can get unlimited sums of money from the government at the expense of the taxpayer. The latter may not see why he should subsidize an expensive airline just because government ministers like to be frequent flyers ensconced in the upholstered left front seat. But he has no choice in this matter; his soft-bottomed elected representatives have decided for him. And if Air India can go on accumulating losses, owners of private airlines will ask how their desire to rest their backs in the sky is less legitimate. The government has not agreed to subsidize their costly comforts, but it has permitted to let foreigners bear the cost.
The question, however, is whether foreign airlines will be attracted to unprofitable Indian operations. India is a cosy, sheltered market. Its area is large enough to generate abundant air traffic. Business here will continue to grow. But India also has men of means; some have set up their own airlines, and others will think of doing so in coming years. So competition in the airline industry will continue to be keen. What assurance, then, can there be that any of the loss-making airlines can be turned around? Foreign airlines may be better at delivering luxury. When he started his airline, an Indian tycoon is said to have promised his passengers that they would be treated in his planes as if they were guests in his home. Although he is reputed to live in some luxury, foreign airlines may be able to offer even greater comforts.
But that is not where the market is. While mainstream airlines are not doing too well, cut-price airlines are making good profits even now. The Indian is extremely sensitive to value for money, whether he is high up in the air or deep in water. So he patronizes cheap airlines, and seats that promise home-like luxury go a-begging. Global airlines are unlikely to be able to compete with cheap airlines even if they were allowed full ownership of their Indian operations. What might tempt more Indians into the sky is lower fares. They can be easily lowered; all that the government must do is to be less greedy, and to reduce taxes and airport charges. As the economy slackens and times worsen, the government will find an ever longer line of supplicants at its door. It will be tempted to hand out goodies to them. But before it does so, it should do some thinking on what will work and what will not. If Air India employs the world largest passenger airliner, its owner employs some of the world’s best economists. They should not be only for display.