New catchphrases are signs of changing times. Sometimes they spell trouble. Consider one such recent invention: “Too big to fail”. Originally an American invention for bailing out firms that had indulged in reckless financial adventures, it has hit Indian shores in the last few days.
On Monday, India’s two largest private airlines — Jet Airways and Kingfisher Airlines — joined hands for route and code sharing, sharing of personnel and other resources to meet the challenges confronting the airline industry. Together they account for nearly 60% market share. Yet, within days, the “airline industry” demanded a bailout, to which Union civil aviation minister Praful Patel agreed with alacrity. He said he was disappointed that some of his cabinet colleagues, reportedly petroleum minister Murli Deora and finance minister P. Chidambaram, did not agree with the bailout proposal.
We see no reason why private airlines should be bailed out using taxpayers’ money. High aviation fuel prices have been a fact of life in India and represent anywhere from 40% to 60% of airlines’ total costs. But having known that, prudent business decision-making could have averted the situation these airlines find themselves in (the expected losses of the industry this year are $2 billion). Instead of such sound decisions, garnering market share by offering ridiculously priced air tickets became fashionable. There was little or no effort to consolidate business. These companies must face the consequences of their actions.
The notion “too big to fail” does not apply in this case. If the Reserve Bank of India is taking proactive steps to inject liquidity into the financial system, it is because chaos in financial markets represents a serious threat to firms, individuals and the economy at large. The airline industry plays no such role in the economy. Then consider the argument that airlines represent “infrastructure” and hence their health is important. For a country such as India, roads, railways and ports are more important any day. Will a crisis in the airline industry reduce manufacturing output? Will it hamper our export performance? Answer these questions and you will know why airlines don’t deserve taxpayers’ money.
Should ailing airlines be bailed out? Write to us at firstname.lastname@example.org