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  • Why it is wrong to expect the government to treat Kingfisher Airlines and Air India the same! (by Amitava Chattopadhyay)

    Posted on November 30, 2012 by in Uncategorized

    “Bail out Kingfisher like Air India” reads the headline of an article in Business Line today (November 27, 2012; p. 4). The article goes on to say that Assocham has asked the government to “provide a similar kind of financial help to Kingfisher Airlines, as extended to state-owned Air India” since independent of whether an organization is public or private, the “resources belong to the nation and should not be allowed to go down the drain.” I am shocked at the ridiculousness of the argument! The public sector exists to serve the nation, the private sector to serve the shareholders. Those shareholders, as far as Kingfisher Airlines is concerned is hardly the “nation”.

    Importantly, why does the government bailout Air India? Or for that matter other public institutions. Perhaps the most significant reason is to control the private sector for the greater good of the nation. Having Air India and its lower than private sector fares, creates a ceiling on consumers’ willingness to pay for air travel by creating a perceptual anchor for what airfares should be. Without Air India, we would have much higher air fares in India, and the additional profits would flow in to the pockets of the promoters and other shareholders, not in to the pockets of the citizens, as it does now, through the lower prices that prevail. One wonders, what drives Assocham to make the statement it apparently has according to today’s Business Line.

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2 Responses so far.

  1. amitava says:

    No doubt there are the issues you point to. And, it is also true that they are not always the lowest price. However, the price is generally the lowest and that has the salutary effect of keeping airfares generally low, which is my point. Moreover, your comment suggests that you also do not approve supporting Kingfisher Airlines with a bailout. So on that account we appear to be on the same page.

  2. Raman says:

    The Government supports Air India because it (Air India) can be used for providing chartered flights, exploited for free trips, upgrades etc., by the Politicians and Bureaucrats. A private airline might not be as pliable. Fares of AI are not necessarily the cheapest. Service levels are far from the best in the business. Competition among private enterprises would also lead to control over prices. I am not arguing for a bail out of Kingfisher,and I certainly do agree that it would be stretching a point to state that the private sector serves the nation. However, Air India is not the first example I would think of as an exemplary public institution in the Indian context.

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