Gordon Bevan, Aviation Expert & VP, UBM Aviation, tells why price-fixing isn’t enough a sign to prove a cartel in progress in the Indian aviation space
B&E: Instead of worrying about cartelisation by airlines in India should a regulator like DGCA or AERA not allow them sufficient time to heal their wounds, whichever way possible?
Gordon Bevan (GB): India must look at what airline competition has produced. Irresponsible market share wars have delivered massive passenger growth, driving down average fares, yet no profits have been made by a majority of India’s airlines. Now uncontrollable external costs are dampening passenger demand. This will hit those airlines that are able to survive low fares through high demand stimulation. Perhaps competition or monopolistic behaviour control needs to be extended to those sectors of industry – like OMCs – that supply the airlines.
B&E: About a month back, former Chief of the erstwhile Air Deccan complained that airlines in India are involved in price fixing and cartelisation, and that the It is quite easy to retell golf club chatter as fact. It is quite another to prove that both cartelisation has been executed in intention and deed, especially in a court of law. Capt. Gopinath’s assertion was that Indian airlines colluded to limit the ‘floor’ on airline ticket pricing. It is entirely possible that airlines would wish to limit the decline of yields and would wish to somehow influence this decline. Whilst this is possibly an aspiration, it is likely to be unenforceable.
B&E: So you don’t think there is a cartel operating?
GB: Cartelisation of an industry requires that all players abide by the informal rules. And there must be a payback. Each of India’s airlines has its own break-even as each airline has a different cost base. Set the floor at Spicejet’s rates and all airlines will lose money, set it at AI’s and everyone will make profits. There are too many airlines in India to conform to a cartel pricing regime.
B&E: In August, the DGCA had observed that the price differential between a FSC like Jet and an LCC like IndiGo is wafer-thin! Isn’t this enough proof of cartelisation?
GB: This gap may be true. It is not proof that cartels exist. It may be the lowest that airlines are prepared to drop their fares to. Wise companies understand their bottomline and know the cost of production. We have experienced the effects of airlines selling below cost in India – clearly a sign that no one was abiding by any commercial sense let alone a price-fixing deal. If cartelisation exists, then it has done a lousy job protecting ailing carriers thus far.
B&E: Instead of worrying about cartelisation by airlines in India should a regulator like DGCA or AERA not allow them sufficient time to heal their wounds, whichever way possible?
Gordon Bevan (GB): India must look at what airline competition has produced. Irresponsible market share wars have delivered massive passenger growth, driving down average fares, yet no profits have been made by a majority of India’s airlines. Now uncontrollable external costs are dampening passenger demand. This will hit those airlines that are able to survive low fares through high demand stimulation. Perhaps competition or monopolistic behaviour control needs to be extended to those sectors of industry – like OMCs – that supply the airlines.
B&E: About a month back, former Chief of the erstwhile Air Deccan complained that airlines in India are involved in price fixing and cartelisation, and that the It is quite easy to retell golf club chatter as fact. It is quite another to prove that both cartelisation has been executed in intention and deed, especially in a court of law. Capt. Gopinath’s assertion was that Indian airlines colluded to limit the ‘floor’ on airline ticket pricing. It is entirely possible that airlines would wish to limit the decline of yields and would wish to somehow influence this decline. Whilst this is possibly an aspiration, it is likely to be unenforceable.
B&E: So you don’t think there is a cartel operating?
GB: Cartelisation of an industry requires that all players abide by the informal rules. And there must be a payback. Each of India’s airlines has its own break-even as each airline has a different cost base. Set the floor at Spicejet’s rates and all airlines will lose money, set it at AI’s and everyone will make profits. There are too many airlines in India to conform to a cartel pricing regime.
B&E: In August, the DGCA had observed that the price differential between a FSC like Jet and an LCC like IndiGo is wafer-thin! Isn’t this enough proof of cartelisation?
GB: This gap may be true. It is not proof that cartels exist. It may be the lowest that airlines are prepared to drop their fares to. Wise companies understand their bottomline and know the cost of production. We have experienced the effects of airlines selling below cost in India – clearly a sign that no one was abiding by any commercial sense let alone a price-fixing deal. If cartelisation exists, then it has done a lousy job protecting ailing carriers thus far.
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