The Cost of Monopoly

Almost 50 years ago, when I was a student of MBA at IIM Ahmedabad, I opted for marketing as my area of specialisation. If I had to sum up the essence of sales and marketing in one sentence, it would be that the customer is the king. Business concerns thrive and survive on the extent to which the consumer is satisfied with their product or service. The recent Indigo imbroglio indicates the culture of a company which has thrown this age-old marketing adage into the garbage bin. The newspapers and electronic media have been overflowing with photographs or visuals of distraught passengers crowding at airports, helplessly waiting to know whether their flights have been cancelled or delayed, and whether the luggage checked in is going to be returned soon. They were also unsure if the refunds would come and to what extent. They were giving vent to impotent “airport rage” at the hapless lower-level staff of Indigo Airlines, but to no avail. Customers, for Indigo, were of no consequence, let alone having any illusions of enjoying a regal status. Yet, Indigo is a profitable airline espousing honourable intentions, trying to say that the fault does not lie with them.

My mind travels back further to my undergraduate days when I did Economics Honours at Delhi University and read in economic theory about the beauty of perfect competition, which took place when there were many players in the market and there was freedom of entry and exit. We were cautioned against the evils of monopoly or duopoly, where a single firm or two of them controlled the price and quality of the product that they delivered. The consumers in such a system are at the receiving end. Today, I find this theoretical concept manifesting in reality in the way Indigo has handled a compliance-related issue by literally holding the consumer to ransom. The attitude of Indigo was not entirely unexpected because of their propensity to treat the passenger not as a consumer to be cultivated, but as a piece of cargo from which maximum profit had to be squeezed out. Most of us are familiar with extra pricing for some seats, heavy charging for even a kilogram or two of extra weight, and finally, the coldly served sandwiches or snacks which are bordering on the inedible. I was shocked to read that Indigo makes substantial profits from its food and beverage sales!

The only redeeming features of Indigo were its neat and clean cabins and punctuality. At the moment, barely 20 per cent of the flights are on time and a huge number are getting cancelled without proper prior information to the fliers. Getting refunds on cancelled flights has become an onerous task. There have been cases where luggage has been checked in, and then flights have been cancelled due to pilots not reporting for duty, and the passengers had not received any clear answer on when and how they would get their luggage delivered to them. Clearly, Indigo, which has a clear monopoly on 60 per cent of the routes, is not very bothered because they know that the passenger has little option. It is also a case of colossal management failure, the brunt of which is being borne by the lower-level staff on duty who are being threatened by irate passengers and even physically manhandled. The top management of Indigo is displaying callous indifference to the plight of their junior employees, who are at the receiving end.

DGCA acted as if it had been taken completely by surprise, when it is obvious that even with a very rudimentary monitoring mechanism, they would have known that Indigo had not complied with the mandated FDTL norms and that this would have created chaos. We now have the Minister sounding tough and making statements that nobody would be spared. It is amazing to read, and not very flattering for the government, to know that almost 50 per cent of the posts in DGCA are lying vacant, and most of these are of a technical nature. It is a quixotic situation of asking the physician to heal himself first before attending to the patient.

Fortunately, the government has been active on the predatory pricing resorted to by the airlines to take unethical advantage of the created crisis. However, the DGCA cannot hide behind the refrain that it had notified the rules and Indigo should have complied. It was the responsibility of DGCA to follow up and ensure compliance. In any case, now that the deed has been done, the DGCA should take this as an opportunity to shore up the regulation of the civil aviation sector and not allow passengers to be taken for a “ride”. There is much talk of deregulation these days as a panacea for creating an ecosystem to step up private investment. Capitalism, to deliver, requires regulation; otherwise, it will always tend to become exploitative. Some ease-of-doing-business advocates never tire of demanding minimum Government and having a system of self-certification for most compliance, with reduced checking and monitoring by Government. This thinking would swing the pendulum to the other extreme and non-compliance would become the norm rather than the exception. The Indigo crisis is a manifestation of this mindset, just as is the recent fire at a Goa nightclub. Left to themselves, companies under capitalism tend to “privatise profits and socialise pain”.

In the USA and Europe, the regulations for civil aviation are much stronger. Passengers also have their rights. In Europe, €250–600 is given as compensation for delays or cancellations, along with reimbursements and, wherever required, re-routing. There are also mandates for providing meals, refreshments and accommodation, and also stringent penalties for airlines that are non-compliant. The regulations ensure that the passenger is not left to fend for himself. India also has regulations on refunds, refreshments and alternate flights, but most of these are on paper.

We, in India, are not conscious of our rights and never really demand quality. So often, in expensive restaurants, we are served dishes having no resemblance to the original, but we smile and bear it. If we pay for a service, it is our right to demand and get high-quality service. If consumers start doing this, the quality of service will improve. Had this kind of messy situation taken place in the US or Europe, there would have been a litany of legal suits filed by passengers who missed their interviews, important meetings or even urgent medical attention. The legal damage itself would have been enough for the airlines to turn over a new leaf. In any case, I see no reason why passengers in India should not explore the legal route.

Above all, the government must create a policy that encourages more airlines to enter the aviation sector. I fear a similar situation emerging in the telecom sector, which is almost a duopoly. The moment we have five or six major players instead of a monopoly, compliance and corporate governance will improve of their own accord. The consumer could then once again sit back and smile, as he would be a “king” again, and business would be as much about people as profits.

Views expressed are personal. The writer is a former IAS officer who served as the Chief Secretary, Govt of Uttar Pradesh