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BW Businessworld

It’s A Mug’s Game, Folks

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As an aviation observer, it is currently fascinating to watch the developments at the two steadily-sinking airlines in India and study the contrasts and similarities between the two. I refer to Kingfisher Airlines and Air India. Both are out of cash and unable to pay employee salaries on time or in full. But one contrast that strikes one immediately is the difference in attitude of the employees.

Employees of one are absolutely certain that their jobs will remain intact and that the taxpayer will continue to bear the burden of their mismanagement and inefficiencies. In fact, so cocky are these employees that they have threatened a strike yet again if their dues are not paid. Seven unions came together and shot off a letter to Air India's chairman and managing director on 21 March saying they will no longer show up for work unless all their dues are cleared. They argue that all "past commitments" made to them on payment of emoluments have been "blatantly violated". So they will not show up for work on 2 April and further whenever future payments are delayed, they will not show up for work the following day. If I was the government, I would seize this opportunity and ask them to walk their talk. Let them not show up and let's see how far that takes anyone.

The second lot of employees, however, has gone silent. Initially, they too made similar threats (pilots said they would not turn up for duty if not paid and so on), but slowly when it began to dawn on them that their threats were falling on deaf ears and would, perhaps, be quite welcome, they have quickly quietened down. Those who could find jobs have quietly done so and many, in fact, hope something will come their way. The airline has suspended international flights, is closing station after station and its passenger loads are plumbing new depths. So if its employees do not show up for work, it will only help the airline.

In spite of the fact that their boss is influential, there is a limit to how much he can push his luck. By all reports, it seems public sector banks have dug in their heels and are no longer willing to bail out the carrier. Employees, hence, face the prospect of losing their jobs. Many already have. Many of them are bitter about the fact that their employers seem no less worse off for all the pain they are going through.

Another striking contrast between the two sets of employees is that in one case, the employees are almost equally to blame for the airline's trouble. (For years, Air India and Indian Airlines employees have been complacent about their positions, paid fat salaries and mollycoddled by the government with free tickets for themselves and their families.) But in the case of the second airline, the employees are suffering for no fault of theirs. It is not as if Kingfisher pilots or unions made any unreasonable demands . Nor were employees pampered silly. If anything, service on board and on the ground was efficient and even gave the leader of the times Jet airways a run for its money.

One similarity between the two airlines is that both continue to cut fares below costs to try and attract passengers — in fact, so severe has been the undercutting that many of the other players are blaming these two airlines for their losses and troubles. Yields for all airlines are around 15-20 per cent below what will make them viable. So, not only are the two carriers bleeding, they seem adamant on taking others down with them. Despite every consultant worth his salt being hired to assist, neither seems to have any kind of effective turnaround plan in place and both seem to have crossed that point of no return.

Another similarity between the two airlines is that we — the public — stand to lose from these fiascos. In the case of Air India, there seems no end to its financial needs and, by all indications, the government seems inclined to go on pouring taxpayer money into this bottomless pit. In the case of Kingfisher Airlines, even if public sector banks put a lid on what they lend, small investors and millions of shareholders stand to lose whatever they may have invested since the airline is public. The banks, too, seem ready to declare the loans to the carrier as non-performing assets.

What are the lessons in this for the economy? One, the government should strictly keep out of running service sector companies and focus on governing. Two, private sector players can be as inefficient and foolhardy as the public sector and poor management is as lethal as poor employee motivation. And three, aviation is a mug's game and only the best can survive it.


(This story was published in Businessworld Issue Dated 02-04-2012)