Watch the cartel

Given the poor performance of most airlines, it is perhaps a welcome development that they have decided to come up with an industry body along the lines of a Nasscom""a body which can take up critical issues such as landing costs in Indian airports or high aviation fuel prices. Landing and navigation charges add up to around 5-6 per cent of an airline's costs in the country. This will come down to around half if charges here are similar to those in countries of south-east Asia. Fuel costs in India, similarly, are around 40-50 per cent more than those incurred by airlines abroad, and are a major reason for the excessive bleeding the country's aviation sector is witnessing at the moment. Given that the ministry of civil aviation has been a major factor in the meeting that took place on Monday""this meeting followed the one chaired by the minister a few weeks ago""it is apparent that the ministry would have put its weight behind a formal association of the airline industry.

But anything beyond this will have to be viewed with suspicion. So, it is reassuring to learn from Air-India's CMD V Thulasidas, who heads the newly formed industry body, that there will be no attempt to fix prices jointly. In the last meeting held with the aviation minister, some airlines were in favour of introducing discipline into pricing, so that budget airlines stopped discounting the fares. Indeed, predatory pricing is a term used by many in the industry to describe this phenomenon. This is incorrect since predatory pricing presupposes market power""it is only someone with market power who, through predatory pricing, can kill newcomers or smaller rivals. Most of the budget airlines which are lowering fares, however, do not enjoy such a dominant position. In the telecom industry, when Reliance Infocomm came out with low tariffs a few years ago, existing firms asked the regulator to take action against what they alleged was "predatory pricing". But the regulator correctly argued that since Reliance was a newcomer to the telecom sector, it had no pricing power and so could not, by definition, be accused of predatory pricing.

So far, it has to be said, the government has adopted the right attitude towards the airlines' financial crunch by rejecting the idea of fixing minimum tariffs. The proposal to increase the minimum net worth of airlines in the new aviation policy is also sensible, as is the idea to link this to the number of aircraft an airline has. The proposal to get airlines to submit anticipated cash flows for the next quarter is, however, curious. On the face of it, this will allow the ministry to know if an airline is likely to go belly up. But what after that? If the ministry comes to the view that an airline's cash flow looks tenuous, is it going to revoke its licence, or will it issue a public warning to passengers? If it does this, it is as good as closing down the airline. There are also other issues relating to the leakage of such data to rivals. The ministry needs to examine such issues before rushing to any solutions, formal or informal.