Socialism of the airlines

Socialism of the airlines

It can happen only in India. It has become difficult to find a solution to the country’s errant private airlines that demand favours during downturns and extract exorbitant fares in good times.

The story began some days earlier when Union civil aviation minister Praful Patel publicly railed against airlines for charging exorbitant airfares. Soon enough these companies protested and came up with a scheme for airfares that in many cases were higher than that for international travel. Another rebuke from Patel ensured that they lowered the fares with the same alacrity with which they proposed a higher fare structure.

In an ideal world, arguing against government intervention in pricing would have been easy. In this case it is not easy either to dismiss the government’s case or support it although for very different reasons.

Big players in the sector—Jet Airways, Kingfisher Airlines and Air India—are weighed down by combined debt of Rs63,315 crore. They have successfully approached the banking sector for debt restructuring. Many of their lenders are in the public sector and controlled by the government of India. This fact alone allows the government some leverage over these companies. There may be some doubt on whether the government should do so but there is no doubt that it is well within its right to demand so. And when, at the face of it, some airlines are indulging in predatory pricing after having availed themselves of the government’s benevolence, the case against intervention becomes weak.

To return to the first question on intervention: Should the behaviour of airlines be determined by the minister’s goodwill towards them? In a rule-based market economy, the ministerial mood ought to be the last determinant in pricing. The right way to go about doing this would have been for the regulator, in this case, the Competition Commission of India (CCI), to launch an investigation and come to a quick conclusion, followed by a hearing and imposition of penalties in case guilt is established. None of this happened. The CCI has been silent till date.

The danger is from the “wrong" kind of intervention. If a rule-based system is adhered to, airline behaviour will be better for the fear of regulatory reprisals. In case the intervention is of the ministerial kind, the danger of cronyism is very real. In that case there arises the risk that airlines can simply pay off a minister in the manner in which erring motorists do with traffic policemen.

The bigger story here is that of regulatory failure to tackle predatory and unfair pricing by firms. This was a constant through India’s socialist interlude and is even now.

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