Productivity and Cost in Indian Airlines, 1964-99

The financial performance of state-owned Indian Airlines has been far from satisfactory since 1989-90. The main reason for this has been the high growth in unit cost. So far no attempt has been made to study whether this was the result of decline in productivity or increase in prices of inputs, or both. The present study attempts to relate unit cost with productivity for the period 1964-99. The results reveal that during 1989-99, when many A-320 aircraft were inducted in the fleet, the productivity of Indian Airlines turned negative and unit cost increased at a much higher rate. Productivity decline was the main reason for a rapid rise in unit cost. The paper suggests that Indian Airlines needs to improve its productivity, and weigh more carefully the impact of inductions of new aircraft on its overall performance.