Iceland’s volcanic ash hit India’s exports as well (Comment)

Even as India’s airlines were struggling to get back to normalcy after weathering the global recession, the volcanic ash from Iceland has given the industry another jolt while also affecting the country’s exports.

Just a few days before ash spewing out of the Icelandic volcano crippled Europe’s airports, Civil Aviation Minister Praful Patel had said that Air India has now turned the corner. His comments about the national carrier may have been premature but he was certainly reflecting the general upbeat mood of the civil aviation industry in recent months. Traffic has been picking up and the bottomlines of companies are not looking as red as in the past.

In fact, the sudden shutdown of European airports last week has hit Indian exporters harder than the aviation industry itself. Some export associations peg the losses at as high as Rs.1,000 crore ($220 million) in this period while others say exports of $1 billion of high-end merchandise to the US and Europe may face delays or cancellations.

Higher freight rates now being charged by the airlines that have resumed flights are going to add on to costs and adversely affect competitiveness of Indian products in major markets of the developed world.

As for domestic airlines, they have not yet totted up the numbers relating to losses. But the International Air Transport Association (IATA) says the global aviation industry has lost $1.7 billion over the span of just a few days.

The skies are gradually opening up but there are huge backlogs with many passengers still stranded on European soil. There are equally large numbers of other travellers who have been trying to get back to Europe.

The whole problem began when Iceland’s volcano with the tongue twisting name of Eyjafjallajoekull began to erupt throwing metallic ash particles into the air. These particles have the potential of damaging airline engines and leading to air crashes.

The first such instance was in 1982 when a Boeing 747 of British Airways en route from Kuala Lumpur to Jakarta flew through an ash cloud leading to failure of all four engines. The aircraft ultimately had to glide and the engines revived enabling it to make a miraculous safe landing at Jakarta.

Despite this and other experiences, there have been voices from the international aviation industry insisting that European governments were too hasty in closing down airports. Clearly, one must applaud the safety first approach of the Eurozone governments that persisted in stopping flights even though it led to huge commercial losses for airlines as well as discomfort for passengers.

In the case of Indian carriers on foreign routes, aviation experts say the shutdown may actually reduce the growing losses of at least one of them, the public sector Air India. Five of its aircraft were grounded at European and US airports from April 16 onwards.

Experts say that grounding might actually have resulted in considerable savings in fuel and other costs for the airline which has suffered losses of about Rs.5,500 crore ($1.2 billion). The airline is not likely to agree with this assessment and may even claim that it has made more losses during this period of disruption.

Kingfisher and Jet Airways which also operate on international routes are still in the process of computing their losses, though global estimates are that airlines are losing $200 million daily due to the shutdown.

Whatever the losses, there is no doubt that airlines have been trying to recoup by jacking up fares as soon as the skies were opened above Europe. In fact, there are reports that fares to London are being quoted between Rs.50,000-Rs.100,000 ($1,100-$2,200) as against the earlier rates of about Rs.30,000 ($660).

This has really added insult to injury for most travellers who have already had to suffer trauma by extending stay abroad and incurring heavy costs on hotels while others have had visa problems owing to overstaying beyond the scheduled date. Some countries like Britain made the effort of sending rescue ships for their citizens in Europe, bringing hundreds of them back home in luxury cruise liners.

Apart from the airlines, the stoppage of air traffic over Europe has been a graver setback to Indian exporters. The Federation of Indian Export Organisations (FIEO) has estimated that $1 billion worth of high end merchandise has been affected by the ash crisis.

Exporters also say the ploy by both Indian and foreign airlines to raise fares has extended to cargo as well. Instead of the normal rates, airlines are charging express fares for normal cargo deliveries which has pushed up costs for exporters already struggling to remain competitive in the European and US markets.

In other words, freight rates have virtually doubled for cargo going to these two major markets. To add to their woes, buyers will be looking for discounts owing to delayed deliveries and there is even the prospect of export orders being cancelled.

While one can empathise with the aviation industry for facing the disruption in flights at a time when recovery was on the cards, it has definitely not taken the high road by raising passenger fares and freight rates to take advantage of the demand-supply gap. It is high time for the government to intervene and rescue individual travellers as well as industry from this kind of blatant profiteering.

This kind of approach is not, however, likely to win friends for the aviation companies. Even in Europe and Britain some airlines are creating more problems for travellers. But others have taken a different tack and even eliminated cancellation charges on flights owing to the crisis.

There is life after such emergencies and it is clear that the travelling public will opt for the airline that has gone the extra mile to help them out. India’s domestic carriers like Kingfisher, Jet Airways and Air India need to adopt a long-term approach in such situations and ease travelling conditions for passengers rather than try to make a quick buck in the midst of a crisis.

(25.04.2010 - Sushma Ramachandran is an economic and corporate analyst. She can be reached at sushma.ramachandran@gmail.com)