National airline, Air India, followed lead of its two private sector competitors Jet Airways and Kingfisher, and today, slashed its basic air fares in the domestic sectors ranging from 35 per cent to 82 per cent as per PTI.

The fare cut was effective from 1500 hours today, an Air India spokesperson said.

The maximum reduction in fares was 82 per cent on the Chennai-Bangalore route, while on Mumbai-Kolkata route, the reduction would be 35 per cent, Air India said. The basic fare for travel between Mumbai and Delhi now stands reduced by 49 per cent.

While Jet Airways and Air India have revealed their cards in terms of reductions, Kingfisher is yet to take a decision on the quantum of the cut, having only announced a reduction.

In other related developments, civil aviation minister Mr. Praful Patel has just released a bombshell. Apparently the government has decided not to bail out Air India. As per an article in Travel Biz Monitor,

The Central government yesterday ruled out any bailout package for National Aviation Company of India Ltd (NACIL), which runs the country's flagship carrier Air India, but said it could be given the benefit of duty cuts, said an IANS report. “The government will not provide any bailout package for NACIL. There will not be any direct financial assistance, but help in other forms like reducing duties is being done,” said Minister of Civil Aviation Praful Patel, on the sidelines of the foundation stone-laying ceremony of the Kolkata Airport upgrade in the city. NACIL recently projected a loss of Rs.21.56 billion for the current fiscal.

The Company had sought a bailout package of Rs 23.5 billion to help it tide over the shortfall. The airline is also in a financial squeeze due its ambitious plans to upgrade its fleet with an investment of Rs 440-billion with a limited equity base of Rs 1.45 billion. Faced with the acute funds crunch, NACIL approached the Ministry of Civil Aviation with a proposal for equity infusion of Rs 13.5 billion and Rs ten billion as soft loan

I find this hard to accept. Air India owes money by the bucket load to airport operators and oil companies, and to other vendors. By the minister's own admissions on the floor of the Parliament, Air India is by far the biggest defaulter to airport operators. Without the bailout package, there is no way on God's green Earth that Air India can pay back its creditors.

It appears this is going to become another case of passing on Air India's burden to the state owned Airports Authority of India, and to the oil companies ?

The government cannot have it both ways. Either it should stop interfering in Air India operations and sell off the airline, or then play the role of sugar-daddy.

According to a Centre for Asia Pacific Aviation (CAPA) report, Air India has almost doubled its bailout request from the Indian Government, in the form of an equity injection and a soft loan (30:70 split), to USD 813 million from USD 467 million requested just two months ago. The amount is roughly equivalent to the revised expected losses for the carrier this financial year.

The request puts the Indian Government into a difficult position, as support for the national carrier would distort the competitive environment for India's troubled private carriers. Jet Airways and Kingfisher have resorted to an operational merger in an attempt to stem losses and both are seeking to raise fresh debt and equity from domestic and offshore sources.

Air India's losses have been caused by its slow integration with the former Indian Airlines, weak demand and excess industry capacity. The carrier, which was reported to be making losses on 200 of its 207 routes, has recently cut back its network and is seeking to raise cash from the sale-and-lease-back of aircraft.

Interference by virtually all the politicians and bureaucrats, who treat the airline as their personal fiefdom, ties down the hands of the management in finding solutions to address the challenges.

Domestic travel demand has been on a downward spiral since May this year (3.9 million passengers) until September 2008 (2.7 million passengers), as a result of slowdown in demand caused by high fuel prices and a slowing economy. Total passenger numbers fell a significant 13 per cent year-on-year compared to last year's 3.6 million. The October numbers have shown recovery, but it is too early to say if this is a case of traffic bottoming out, or not.

Indian domestic passenger numbers and passenger numbers growth: January 2007 to October 2008

Source: Centre for Asia Pacific Aviation and Ministry of Civil Aviation

Air India's domestic passenger numbers fell 10.6 per cent year-on-year to 565,000 in October 2008, giving it a market share of 18.2 per cent, up from 17.6 per cent in October 2007. The carrier's load factor was also an anemic 59 per cent in October 2008.

According to a Press Trust of India (PTI) report, the downturn in the aviation sector yesterday brought the differences among UPA ministers into full play on issues like the bailout for the beleaguered industry.

The Labour Ministry convened a tripartite meeting to discuss the sacking of 1,900 Jet Airways employees. “We will seek details of employment and inspect the work contracts of the employees to decide if action can be initiated against the airline,” said a Labour Ministry official from Mumbai. This decision was taken after Union Labour Minister Oscar Fernandes sought and got a report from the Chief Labour Commissioner on the Jet episode.

After yesterday’s meeting of the Union Cabinet a senior minister said that the government had little to do with the internal decision of an airline, and said that Jet Airways did not figure in the Cabinet discussions. But senior ministers differed publicly on the demand of airlines for official succour in the form of massive cuts in taxes and levies, primarily on jet fuel - blamed for the poor financial health of the companies.

Batting for concessions to the ailing sector, Civil Aviation Minister Praful Patel said that unless ministries work together and come out with solutions, there will be no relief. “As a politician, I would also not like anybody to lose jobs,” said Patel. Apparently irked by Patel's comments that he was disappointed that ministries were not cooperating, Petroleum Minister, Murli Deora hit back by saying that he had helped broker a deal between Jet and Indian Oil Corp for a 60-day fuel credit facility.

“But they have not kept the agreement,” said Deora, adding that Jet had defaulted on payment of Rs 259 crore on bills raised more than two-and-half months back. But Jet said that their payments were being made within the stipulated time. When asked about Patel's statement R S Pandey, Secretary, Petroleum said, "If there are demands for reduction in taxes, the issue is to be addressed by the Finance Ministry and the respective state governments.”

Deora separately criticised the timing of the decision - the middle of the festival season. “I do not approve of (the retrenchment) you just cannot do such a thing. This is not the right time to retrench people, particularly before Diwali,” said Deora.

Patel further informed that on a personal level he will try to talk to people and see how maximum number of people could be accommodated. But the airlines say they have to protect the employment of 11,000 permanent staff and in that context, the jobs of 2,000 temporary employees may have to foregone. The CPI(M)-affiliated trade union, Centre of Indian Trade Unions (CITU), registered a complaint with the Labour Commissioner's office in Mumbai regarding the layoffs, while the Aviation Industry Employees' Guild (AIEG) threatened to boycott the airline across all airports.

Jet Airways, which has struck an operational alliance with Kingfisher Airlines to cut costs, expects the lay-offs to result in savings of USD one million a month. ATF or jet fuel price, which account for a major chunk of airlines' operating costs, have been reduced twice in two months to Rs 56,447.80 per kilo litres (in Delhi) as of September 30, 2008. But Wolfgang Prock-Schauer, CEO, Jet Airways had said that despite the decrease in ATF prices, the prices remain around 50 per cent higher compared to a year ago.

Despite the deregulation of pricing of ATF on April 1, 2001 the control of supply by government owned oil companies, and ridiculous taxes, ensure that ATF in India is about 170% of the international price. Over the base price, customs duty of 5%, excise duty at 8%, education cess of 3%, and state sales tax at an average of 25% is levied. State taxes and excise duty amounts for about one-third of the price of ATF.

Praful Patel justified the demand for reduction in taxes on fuel by saying that the airline industry was a job creator like any other and needed attention. The government is awaiting the report of an expert group, which is looking into the demand of the industry for a Rs 4,750 crore ($1 billion) bailout package.