Mukesh Ambani plans to sell oil

IIPM’s 36th Glorious Year of Academic Excellence

Added to this is the process issue of landing delays. “Any aircraft, on an average, spends 26-30 minutes in air because of traffic congestion,” Hitesh Patel, EVP Kingfisher Airlines, bemoaned to me when I met him for a tête à tête in Mumbai. In a flight that generally takes cut-to-cut 80 minutes (say, Delhi-Mumbai again), such a landing delay increases fuel costs by almost 33%!

In this Catch 22 situation, there are very limited options left. First is to cut flights: as SpiceJet did by reducing the number of flight from 117 to 100 recently. Second: Change the business model, which Jet Airways is planning to do by announcing a foray into flying freighters in the wake of squeezed margins on passenger flights. Jet plans to use three leased Boeing 737 JetLite passenger planes for its cargo operations. Third: one can learn from business models of international low cost airlines like Rynair. But Jitendra Bhargava, ED, Corp Comm, Air India, disagrees with me, “The Indian low cost model and the Ryanair model is not comparable, as here we do not enjoy any advantage like operating in/out of secondary and distant airports where landing/parking charges are lower. In India, low cost airlines operate from the main airports as no major city has two airports.” Even Maunu Von Lueder, quoting many examples, toed the same line, “The Ryanair model and the likes cannot be copied in the Indian market...”

But the worst part of this story is that unlike Uncle Scrooge, not one Indian LCC has a documented strategy of hedging and locking into fixed oil prices in the past few years to escape the vagaries of oil price increase. Think about it. Southwest Airlines in the US did just that in 2007 by locking into oil at $51 a barrel just before the crude oil’s yearlong run-up. This resulted into gains of almost half a billion dollars just in the first 9 months of 2007. And why haven’t Indian LCCs tried this out? I didn’t get even one concrete answer for any LCC!

Now comes the news that Mukesh Ambani plans to sell oil in the Indian market at $25 a barrel by the next year and save the government’s import bill by over Rs 1.1 trillion. This could give a boost to airlines. But if they thought that Lalu is going to be flustered even one bit, perhaps they conveniently forget, Indian trains don’t run on highly priced buffalo manure. They thankfully run on electricity and coal, both sources owned by the government!

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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