Friday, February 25, 2005
More on aviation in India
Keeping up with the pre-budget thread of how things are changing in India in the infrastructure sector, have a look at this op-ed piece by T.N.Ninan in the Business Standard. Ninan makes the point that recent moves to open the skies will save the Indian consumer at a minimum a billion dollars. What's more, this billion will be saved by the 6 million Indians who travel abroad and does not include the savings that will accrue to the 19 million who travel domestically.
It is funny how protectionist policies work, because they usually protect the guy you didn’t have in mind as a beneficiary. Take a look, for instance, at the spate of announcements on reduced air fares and you realise who was benefiting the most from the policy of restrictive aviation rights: not our national champions Air India and Indian Airlines, but British Airways and Lufthansa and Emirates and all the others who have been milking Indian passengers.
Waking up to the threat of fresh competition from newly recognised players like Jet and Sahara, and realising that the Indian customer will now have the benefit of genuine choice, most of the established airlines have slashed fares by up to 50 per cent, so that you can now fly to London for less than Rs 20,000. Even after making allowances for the fact that this is the slump season (being also the exam season in India), and that traffic will pick up in the summer months (and fares might go up then), it seems reasonable to assume that the average fare will have dropped by about 25 per cent simply because the skies have been opened up by a civil aviation minister who understands business.
Some 6 million Indians travel overseas each year. If you take the average fare that each of them pays as being about Rs 30,000 (the off-peak cost of a round trip to London), and assume a 25 per cent saving on this fare from now on, we are looking at shaving off travel costs by about Rs 7,500 per head; or, a total of Rs 4,500 crore (i.e. a billion dollars) being saved by all 6 million people.
Now, a billion dollars each year is money saved mostly in foreign exchange. It is enough to buy all the new planes that the new airlines have been talking of, so in a national accounting sense the country is getting its new aircraft free. Then there is the additional benefit that will flow from cheaper fares on India routes: more foreign travellers will drop by, instead of flying on to Bangkok. This will be helped by new airports and a proper tourism infrastructure (whenever they come), but the important point just now is that India is seen as an expensive destination and that can change.
It is funny how protectionist policies work, because they usually protect the guy you didn’t have in mind as a beneficiary. Take a look, for instance, at the spate of announcements on reduced air fares and you realise who was benefiting the most from the policy of restrictive aviation rights: not our national champions Air India and Indian Airlines, but British Airways and Lufthansa and Emirates and all the others who have been milking Indian passengers.
Waking up to the threat of fresh competition from newly recognised players like Jet and Sahara, and realising that the Indian customer will now have the benefit of genuine choice, most of the established airlines have slashed fares by up to 50 per cent, so that you can now fly to London for less than Rs 20,000. Even after making allowances for the fact that this is the slump season (being also the exam season in India), and that traffic will pick up in the summer months (and fares might go up then), it seems reasonable to assume that the average fare will have dropped by about 25 per cent simply because the skies have been opened up by a civil aviation minister who understands business.
Some 6 million Indians travel overseas each year. If you take the average fare that each of them pays as being about Rs 30,000 (the off-peak cost of a round trip to London), and assume a 25 per cent saving on this fare from now on, we are looking at shaving off travel costs by about Rs 7,500 per head; or, a total of Rs 4,500 crore (i.e. a billion dollars) being saved by all 6 million people.
Now, a billion dollars each year is money saved mostly in foreign exchange. It is enough to buy all the new planes that the new airlines have been talking of, so in a national accounting sense the country is getting its new aircraft free. Then there is the additional benefit that will flow from cheaper fares on India routes: more foreign travellers will drop by, instead of flying on to Bangkok. This will be helped by new airports and a proper tourism infrastructure (whenever they come), but the important point just now is that India is seen as an expensive destination and that can change.
