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10 years down the drain for airline owners
Dec 5, 2014

The government is planning to form a committee within the next two weeks which will comprise bankers, aviation experts and technocrats to help turn around Air India. It will also consider whether to privatize the airline or not. Indeed, some big names are being roped in to be part of this committee. A report in the Mint newspaper points out that the mandate of the committee will likely be to look at making the airline better by cutting costs and increasing revenues before it is privatized.

Would this be the right way of going about things? No we would say. For this is not the first attempt to turn around Air India - an endeavor that has had a terrible track record. We believe that the government must straightaway start working on ways and means of privatizing Air India with no delay whatsoever. Why? It is no secret that government run companies tend to be much less efficient when it comes to a comparison with privately run companies. And while this is usually not that big a problem, the reason it has become such a big predicament in the case of Air India is because the airline industry is one of the most difficult industries in the history of capitalism.

Estimates peg that every year the government has been pumping in Rs 60 bn to keep the airline flying, which the latter then promptly goes ahead and burns all of. We see absolutely no hope for the government to be able to do anything constructive in an industry so brutal. The ideal solution, perhaps the only solution, is an immediate privatization of the airline we reckon. Until that happens, taxpayer money will continue to burn.

To give you a glimpse of just how bad this industry can be for the owners of businesses in it, we present to you today a chart of the return on assets (ROA) for the airline industry over the last decade.

Data source: Ace Equity

This Chart Of The Day was published in The 5 Minute WrapUp - Most of the world, except India, is Japanese now!

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