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    Posted on 18 November 2011
    Sushil Bhan

    Planes don’t fly when the boss is asleep

    The air is thick with private airlines offering reasons for losses. It is time for them to stop whining and get more efficient with work ethic

    Sushil Bhan
    New Delhi

    Illustration: Sanjoy Naorem

    GET A load of this, India’s scheduled private airline sector registered annual operating revenue of Rs 28,000 crore and carried 1,13,131 ‘pick of the litter’ big spender passengers last year alone. That they made losses is a story far less spectacular than the windfall that kfa, Jet, Indigo, Spice and Go can expect when they manage to turn the tide by firing efficiency into their operations. There needs to be no doubt in anybody’s mind that efficiency alone will decide the winners, all other things remaining equal. Airline investment decisions need to be based on performance indicators such as the average daily revenue hours per aircraft and not necessarily on operating profit because unless an airline has operational efficiency strategies in place, such as are indicated by the average daily revenue hours, one should be aware that the bottom line for a particular quarter will not be indicative of what numbers will come up in the next report. The focus needs to be on an airlines strategy and then the investment will always have the highest comparative sector yield.

    Some of us may be shocked to know that India’s beleaguered airlines have some of the poorest organisational efficiencies compared to their counterparts anywhere else in the world. Therefore the question of why India’s airlines are going bankrupt is a far less complicated question than what the recent discussions on the subject make the issue out to be.

    It is true that the sector in its entirety is experiencing record losses but it would be wrong to assume that India’s real or latent demand for air passenger and cargo services does not offer what can safely be described as a mindboggling and a limitless opportunity to create wealth. The power of a consumption-driven Indian economy comprising substantially of the young can make airline demand only go north. This is unquestionable.

    Airlines could morph into different entities but the size of the sector will only grow. The trouble with privatisation and democracy is that positions cannot permanently be occupied by businesses, which are unable to think and act creatively and swiftly. Especially in industries such as airlines, where cash burn rates tend to be obscenely high. You have to be an organisation relentless about pushing the efficiency envelope and you have to do this on a daily basis. To reiterate what has already been stated, the efficiency of India’s airline sector might be lacking but the demand is so towering that India’s aircraft fleet will only grow from here. Perhaps with a different insignia and under a new operator but the plane once it has come into India will always stay in India. Demand is not something India needs to worry about, getting asset utilisation to dizzying levels is all that should be on an airlines’ must do list.

    The current players will need to figure out whether they want to become operationally fighting fit to roll out the good times for them. Or there will be nothing and no amount of resistance that can prevent them from going under. Not efficient, move over.

    The era of the Nawabs is over and excellence will find no dearth of financial backers that bring newer and stronger airline players into the market by the minute. These reforms will pick up whatever slack gets created by failures and the exits from the airline business. That is where we are headed anyway and there is nothing anyone can do about it. We have to bet on players who have solid operations strategies, lean on modern technology and possess the intellectual capital to remain future-protected.

    There are 1,50,000 airline passengers flying everyday in India on the backs of airplanes that have a combined airline capacity to carry 2,14,000 passengers. If this underutilisation were not enough to explain the staggering losses we have been seeing in the airlines sector, the current players also have close to 40 per cent cargo capacity utilisation gap that nobody seems to know how to cap. It should therefore come as no surprise to anyone that market forces will continue to penalise airlines that seem incapable of flying for more hours every day or entice cargoes to fill planes to their gills. The market has a natural price level and it can barely be expected to reward an airlines fascination to transport fresh air from place A to place B. The market says, get efficient.

    When you consider that our industry is able to keep planes in the air for less than nine hours in a 24-hour day compared to top carriers who routinely pull off efficiency of some 17 hours of flying per day, you begin to get a sense of what the really is at the heart of the ills of our airlines industry. If we are able to match the efficiencies that some of our western counterparts are able to pull off, then the 2,14,000 passenger capacity figure would stand at twice that figure without having to add even one more plane to our airlines system. Making more with less is what the best airline will need to do.

    When you consider that our industry is able to keep planes in the air for less than nine hours in a 24-hour day compared to top carriers who routinely pull off efficiency of some 17 hours of flying per day, you begin to get a sense of the ills

    A lowering of atf costs would be great and if we were to simultaneously target efficiency as our top priority, we in India could witness some of the most unbelievable increases in passenger and cargo numbers at margin yields that put sense back into the airlines business.

    The government and its regulatory arms in the aviation sector are not the villains everybody makes them out to be. This may have been partially true five years ago but today the government is certainly not a challenge. Short of ratifying fake licenses or decreasing aircraft maintenance vigil, the regulator is providing all conceivable assistance to the sector. The extensive commercial insight from the likes of the dgca, the aai and the aviation ministry are better than what you can get from all the private aviation consultancies put together. And this is not even their job but they are doing it.

    We must therefore appreciate that the government is stepping out as far it can to make the industry successful and we must understand that if the government were to delve deeper into participating in actual operations, then it might as well nationalise the industry again and run it in the manner it was run many years ago. What do you think Vayalar Ravi wants of his ministry? I would be surprised if he is not taking every step possible to ensure that he goes down in history as the man who managed to pull off the impossible.

    ATF PRICES have gone from low to high over the past 20 years and if we were to believe that they were the only culprit then it would be hard to explain why airlines are not sitting on substantial cash reserves from profits they would have made when atf prices were low. The truth is that the airlines were inefficient then and the sad truth is that airlines continue to remain grossly under-efficient when compared to the scale efficiency that the business currently demands. This has got to change.

    The airlines in India are run by world-class professionals who comprise of some 4,282 pilots, 12,848 technicians, 9,774 cabin staff and perhaps an equal number of ancillary staff. If you imagine these handful of people move this mammoth logistic on an everyday basis then you begin to appreciate why airlines must turn to them if doubling efficiency has to ever become reality. If the doubling does not happen, you know what is going to happen to airlines balance sheets. It certainly is time to focus on things that matter.

    In what can only be described as unexplained aristocratic compulsion, airlines managements have not demonstrated that they understand the intrinsic importance of their critical human resource to the running of the airlines business. To say that managements have chosen to see these people more as an expense and less as a critical resource does not run the risk of being called an exaggeration. Disconnect between managements and this group of professionals has plagued and continues to hurt this business more than the ceo wants to admit. If this is so then you might need to get yourself a ceo who knows how to create those win-win situations that are necessary to preserve an airlines venture as well as have respectful sustenance for the workers who make things possible.

    Don’t be surprised if a bank, which is expected to show due diligence before financing an airline deal, does not even pause to ask the prospective borrower a simple question, how do you plan to operate your airline, maintain and fly your planes? Do you have a human resource strategy in place or do we hurriedly fly to a fancy locale and sign our investment deal. This way, the challenge of finding 4,000 good men and women takes care of itself, all by itself. Well, there is an old aviator saying that goes something like this: there are no living silly pilots in this world because if they make a mistake they perish. It looks like that statement must be expanded to include everybody associated with the airlines business, especially the financiers. Banks need to understand things beyond money.

    Done right, the airlines business is a fascinatingly fast money-producing machine and to top everything, the business also happens to be phenomenally portable. Imagine a situation where you have to leave your buildings behind if a country goes into deep crumble. But you can always fly away and take your airline business someplace

    else. It is unfair to criticise low cost airlines if they have a handle on efficiency because efficiency is not about keeping costs down, it is about creating stupendously more opportunities of revenue. Airlines must top up on efficiency.

    Now, 100 per cent fdi in aviation is an entirely safe and accelerated option to solve many problems of the airlines sector. The largest simultaneous gain will be the tremendous scaling up of efficiency, the second will be the availability of cash and the most important manifestation it will most certainly create is the bridges of possibilities for our airlines professionals and airlines entrepreneurs to expand internationally. fdi will help in speedily delivering here and now results to the Indian flyer, way faster than the organic self-engineered approach can ever deliver. No outside force can flee with India’s wealth because India is the largest and the most severely democratised market where everybody wants to be. India is also the best possible staging area to service Asia and Africa, which in 20 years will become the only places with growth. The world is conspiring to make India grow.

    A repeat of our hassles with colonial occupation in the current state of the world is absolutely not possible. fdi in any sector carries zero risk in the shape and form India is in at the moment. The liberalisation in 1991 propelled us to a 1.7 trillion economy in 2011, double where we stood on the day of liberalisation. The opportunity differential between our extremely low per capita incomes, the size and depth of our democracy, and the orderly nature of our social system – compared to dizzyingly high levels of wealth sitting in the saturated economies of the developed world – will ensure that the flow of investment can only gravitate eastwards and into India. Things will keep getting better for India. Buckle up.

    Sushil Bhan is a strategy and technical operations veteran based in New Delhi. He has 25 years experience with some of the largest global corporations in international trade.
    [email protected]

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    Posted on 18 November 2011



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