Budgetary support and debt restructuring for Air India have been finalised, now it is time for the airline to concentrate on completing the merger. Many have criticised the government for the merger. But the merger is yet to be effected.

Air India has suffered as a result, while facing the financial problems plaguing the country's airline industry. With the Kingfisher saga, it is now known that several airlines have been losing money. Air travel is essential for modern life but the airline business is a tough act. 

Globally, airlines have been struggling with high costs, especially of aviation fuel (ATF), fluctuating loads and suboptimal fares. In India, where ATF costs are much higher, airlines have also been facing excess capacity, fierce competition and very low fares. Crude used to be around $27 a barrel in 2003; it rose to $147 in 2008. It is above $125 now.

Since 1996, 13 airlines have ceased to exist in India, but the glamour of the industry or ignorance of the reality has attracted people into this business. To be fair, the growth in Indian economy that created demand for air travel also attracted them.

Air Deccan ushered in the low-cost carrier (LCC) model, offering low fares and attracting a large number of rail travellers. While a flight at the cost of a train ticket attracted people, could airlines afford it on sustained basis? If one LCC thought it would capture the market with low fares, others could play the same game. The airline lost money but the promoter was able to sell it to Kingfisher. There is not much that is 'low-cost' about low-cost airlines.

They pay the same ATF price, the same airport charges and the same pilot salaries. They may pay less on other categories, save on meals and distribution costs. They have more dense seating than fullservice carriers.

Others had to match the LCC fares. Thus, all airlines in India became low-fare carriers. The LCCs had an advantage of slightly lower costs.

A legacy carrier had higher costs. Non-legacy costs included in-flight entertainment costing around $1 million per aircraft after Kingfisher introduced this luxury on domestic flights. They started bleeding first. Selling below cost was unsustainable and it didn't take long for the LCCs to start losing.

The policy of open skies, granting liberal bilateral rights to foreign carriers, brought in huge capacity into the Indian international market, with a few getting disproportionately high quota.

These airlines were able to divert a good chunk of traffic to their hubs for onward connections. Most of this traffic ought to have moved on Indian carriers, mainly Air India. Opening up the Gulf routes to private Indian carriers also affected Air India.

The government allowed Air India to purchase aircraft after many years, but opened up the sector at the same time, without allowing its airline to get in shape for the competition. This is the context in which the merger of the two national carriers has to be viewed. It was to integrate the domestic network of Indian Airlines with the international network of Air India. This should have led to a stronger airline with greater passenger appeal and increased passenger loads.

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