OPEN APP
Home >Opinion >Columns >Opinion | The boom and bust in telecom, aviation are worrying
Photo: Reuters
Photo: Reuters

Opinion | The boom and bust in telecom, aviation are worrying

The paradox is that in both sectors, the conditions for success are intact. Demand is growing

India’s toxic skies have claimed their latest victim. With its founder Naresh Goyal out of Jet Airways and the airline on oxygen, India’s airline industry is continuing its pattern of boom and bust, despite the deceptive growth in the number of fliers. Jet isn’t the first airline to bow to financial pressure. Indian skies are littered with the wreckage of many entrepreneurial dreams that soared initially, but almost always came hurtling down.

Aviation and telecom were the flag bearers of a new India post the reforms of 1991. Recognizing the possibilities on both the supply and demand sides, these two sectors were among the first to be thrown open to private enterprise in the early 1990s by the genuinely reformist government of P.V. Narasimha Rao. Both sectors are in a mess today. In telecom, there are just three companies left to service the world’s second largest base of customers, while aviation is almost a one-horse race with a haemorrhaging Air India and, now, Jet barely surviving on the largesse of the government and state-owned banks.

A look at the financials of the two sectors reveals deep splashes of red ink on the balance sheets of many of the incumbents saddled with large, looming debts. According to aviation consultancy CAPA India, Indian airlines are estimated to have lost $1.7 billion in the year ending March 2019. In telecom, too, the losses are pronounced, while in both sectors leverage is unsustainably high.

What’s worse, as companies in these sectors have gone down the tube, shareholders have seen their wealth disappear. The Jet stock lost over 65% of its value as its troubles escalated over the past one year. In telecom, Reliance Communications’ shareholders are left holding a dud, with its stock price plummeting to 3.95.

The paradox is that in both sectors, the conditions for success are intact. Demand is robust and growing. After posting double-digit growth for most of the last 10 years, International Air Transport Association (IATA) forecasts growth of 6.1% per year over the next 20 years in India. In telecom, smart phones are still under a quarter of all phones used in the country. The overall opportunity for growth, therefore, is still enormous, even if taking it calls for deriving higher realizations from existing customers.

That, really, is a pity. Just when the market for both these services reached an inflexion point, there’s been a collapse. If liberalization was aimed at providing multiple options to customers by opening the sector to several competitors, it seems to have failed. Indeed, the first phase of reforms in telecom was configured in such a way as to ensure that in each state there were a minimum of two service providers, besides the state-controlled Mahanagar Telecom Nigam or Bharat Sanchar Nigam. The current scenario points to the possibility of a monopoly or a duopoly in both these sectors, and that can’t be healthy either for the industry or the customer.

Perhaps, the Indian customer himself is to blame for this situation. Tempting as it seems to hold up low telecom tariffs as symbols of success, they could actually be the early warning signs of a financial disaster. You don’t have to look further than the race to the bottom in Indian skies. Time was when India’s airlines vied with each other for ever-lower ticket prices. Remember the 999 bonanzas? Today, air fares are skyrocketing, service quality is abysmal and, vitally, choice is lower.

The regulator also needs to cop a part of the blame for having cleared mergers and acquisitions (M&As) indiscriminately. What ultimately destroyed Kingfisher was its purchase of Air Deccan. Jet Airways’s troubles probably started after it acquired Air Sahara. And, even Air India may have stayed solvent had it not been for its ill-advised merger with Indian Airlines.

Ongoing technological innovations will ensure there will continue to be newer ways to enhance customer experience, in the process ensuring newer revenue generators. In the telecom space, 5G could usher in an era where customers pay not for every byte they consume, but instead a single fixed fee for all their broadband requirements. The effect of 5G on the battery life of devices is also likely to be significant, with increasing network control and data transmission ensuring that these gizmos don’t have to stay in continuous communication with the network, which effectively reduces energy consumption drastically while extending the ability of customers to use their phones without charging for long periods. In addition, 5G is expected to finally kickstart the promise of Internet of Things (IoT) as disparate devices start talking to each other.

Similarly, in the aviation space, newer aircraft are already much more fuel efficient, and, with the next generation of planes capable of using alternative fuels, their carbon footprint is also likely to come down. Changes in flight patterns as well as the very architecture of newer airports will also result in many more opportunities to enrich the customer’s experience. All that is rendered irrelevant if there isn’t a large enough ecosystem in India to take advantage of these opportunities.

The high mortality rate of businesses in both these sectors has also meant that not too many entrepreneurs are waiting in the wings—and that is a real shame. For the cycle of business depends not on large existing companies, but on garage startups.

Sundeep Khanna is executive editor at Mint and oversees the newsroom’s corporate coverage.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Click here to read the Mint ePaperMint is now on Telegram. Join Mint channel in your Telegram and stay updated with the latest business news.

Close
×
Edit Profile
My ReadsRedeem a Gift CardLogout