Freeing Air Routes

The first of these is the suggestion that the government should auction all domestic routes. This is a good idea provided it is implemented sensibly. Auctions have become the preferred alternative to licensing in a host of industries, foremost amongst which is telecoms. Auctions will work well if they are thought through properly. Many models of successful auctions exist abroad. These can be the basis for devising a suitably modified model for India, instead of starting ab initio.

However, while auctions yield efficient economic and commercial results, they also have a tendency to create local monopolies or duopolies if the two-highest bidders principle is followed. This can and does lead to price collusion in the market. However, it is no answer to allow a third bidder save on some exceptionally crowded routes like Delhi-Mumbai because the experience elsewhere shows that the third operator usually goes bust.

 

The Brahma Committee has also suggested that the promoter of an airline must own at least 50 per cent of the equity. Presumably, this is to ensure that he has a long-term stake in the business. But why 50 per cent? Wouldnt the promoter have the same anxieties if he owned 49.9 per cent, or even 40 per cent? It would have been helpful if Mr Brahma had paid some attention to this detail because, by suggesting a figure which serves no useful purpose, he may have inadvertently created an avoidable difficulty.

The third important recommendation is that the operations in the north-east be subsidised through a direct and explicit subvention from the Budget. No one can quarrel with this because, if implemented, this suggestion would at once make the hidden costs apparent and also induce more private operators to enter the region. The current system of cross-subsidisation is, in fact, a major deterrent to entry into the north-east because air fares are still not wholly deregulated. The directorate-general of civil aviation still has a fair degree of informal influence.