Jet Airways, which was India’s second-largest airline until about a year ago, especially known for its premium services and operational efficiency, has finally bitten the dust, temporarily suspending its operations after banks led by State Bank of India denied it emergency funding. This move has rendered around 16,500 employees of the airlines unemployed, having no certainty about the future.
The employees of Jet Airways have been writing letters to the President and the Prime Minister, seeking intervention to save their jobs and getting their due salaries cleared. However, the demand of Jet Airways employees betrays the fundamental understanding of the market economy.
In a free market economy characterised by many players, it’s in the natural course of events that a business goes bust. There can be multiple reasons for that. In 2018, Sears, which was one of the largest retailers of the world at a certain point in history, filed for bankruptcy while the famous toy brand Toys R Us had done the same in 2017. The nature of competition in the market is quite stringent, which results in almost 30% of the business enterprises getting closed within a year of its inception, 50% in first five years and an overwhelming 66% in 10 years of operation.
The bigger corporations don’t enjoy immunity from the brutality of the market, which filters every entity that can’t withstand the changing pace of the market. They go bust as well. According to a report by McKinsey, the average life span of a Standard and Poor’s 500 firm is merely 16 years, which was more than 50 years in the 1960s, signifying the increasing intensity of competition.
When business failure is such a routine affair, should the government intervene in the market merely to save the jobs of the existing employees? The answer is a clear no. Generation of employment is a byproduct of any business activity, as every business activity requires manpower. Any effort to save the employment of a bankrupt corporation or the one in massive debt and liability essentially goes against the fundamental principle of the market, which allocates resources at the most efficient entity. The government intervention in Air India has ensured that public exchequer has been wasted to fund a business entity incapable of generating profit, defeating the very purpose of starting a business.
India’s civil aviation sector has faced difficulty due to
- higher fuel tax
- predatory pricing to force competition out of the market
- influencing of the regulations such as 5/20 years (a carrier requires to have at least 20 aircraft flying for five years in order to get the license for international flights)
- higher parking fees etc
The sector needs to be made efficient at the moment by getting rid of carriers such as Jet Airways, which have been unable to bear the brunt of the market. The airline sector is considered one of the most difficult in business due to its high fixed and variable costs, dependency on the exogenous factors, bloated cost structures etc. In the past, airlines such as United Airlines, Delta Airlines, American Airlines had filed for bankruptcy but were saved from their extinction due to mergers and consolidations.
The employees of Jet Airways should accept the grim reality that businesses, irrespective of their sizes, will continue failing in a market economy. If they have relevant skills, there shouldn’t be much difficulty in finding employment in the sector.
For people whose skills don’t match with the demand of other organisations in the sector, acquiring new skills is the way to go forward instead of pleading for help from the government, which will merely complicate the situation without any tangible gains.