Thursday, November 13, 2008

This is Called Collusion, Period

It was quite an interesting sight: the flamboyant and now a tad corpulent Vijay Mallya hugging the reticent and a tad hesitant Naresh Goyal even as camera bulbs kept flashing. In an astounding accomplishment, bitter rivals Jet Airways and Kingfisher Airlines had formed a strategic alliance. And for a while, it appeared as if the alliance had all the blessings of the Union Minister for Civil Aviation Praful Patel. Both gentlemen called it the need of the hour and together raised a chorus to get more benefits and doles from the State because the aviation sector is bleeding. Both blamed rising fuel costs as the principal factor behind the huge losses being generated by commercial carriers in the country.

But the fact of the matter is very simple: the two have willingly and openly formed a cartel with the tacit blessing of the government. It is now difficult to fly Kingfisher or Jet from Delhi to Mumbai without paying at least Rs.7,000 for a one way fare. I suspect that if airlines like GO, Spicejet and Indigo are compelled to fade from the scene, a one way ticket between Delhi and Bombay will cross Rs.10,000. Any which way that you look at this, the consumer will be the big loser and the notion of 'competition' will become a joke in this sector. On top of that, it would be a travesty if Jet and Kingfisher are bailed out by the government at the expense of the consumer and the tax payer. By 2006, when Mallya and Goyal were locked in mortal combat to become the aviation King of the country, both the airlines were aggressively gunning for market share. To be bigger and bigger seemed to be an obsession with both.

Please remember; by this time, the whole world knew that oil prices are rising and virtually any analyst worth her salt was forecasting higher oil and fuel prices. And yet, Naresh Goyal ended up taking over Air Sahara and Vijay Mallya effectively killed the middle class Indian dream of flying by taking over Air Deccan. Since they claim to be very successful entrepreneurs, surely they were aware of the risks they were taking in buying off low cost carriers at a time when rising oil prices were leading to questions on their viability? Surely both knew that bad times are coming, even as they splurged company money on new routes, more pilots, more crew and more of everything? They erred and as entrepreneurs, they must pay a price. After all, competition means that you lose in business if you make the wrong decisions. A bail out to both the airlines by the government will be a travesty. If at all the government does provide a bail out, it should be after the two sacrifice a bit of their equity stake in the companies.

The tragedy is, in sector after sector in India, companies are merrily forming cartels and taking the consumer for a ride. In every case, the government makes some polite and threatening noises about cartels and promptly goes back to sleep. If Indian consumers are to ever get what is their due, regulation in India will need to be made far more effective. And, the State cannot afford to hand pick personal favourites in the corporate sector. That is the worst form of crony capitalism. Surely Dr. Manmohan Singh is aware of that?


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