June 23, 2011

About nonchalant claims

One morning exactly 21 years ago, I walked up the stairs to a travel agency near my home in Bombay. At short notice, I had to make a trip to Madras (what Chennai was then called) and Visakhapatnam. There wasn't enough time to reserve train tickets, and I didn't have the time for train travel anyway. So I asked the lady at the agency to get me air tickets.

At the time, air travel within India meant Indian Airlines. (If you can imagine). There was also no convenient web, so she had to call Indian Airlines to reserve seats for me on the three flights: Bombay to Madras in four days, Madras to Vizag about three days later, Vizag to Bombay another three days after that.

That evening, she had my tickets for me. I remember exactly what I paid because for some reason I preserved her bill for years. For all three flights, a total of Rs 1365.

It was a fun trip, and included both a near-accident with a APSRTC bus and a demand by its bus driver that I expose the film in my camera. Those stories, another time. Also, food of sorts was served on all three flights.

This morning something reminded me of that trip. Idly, I decided to check what it would cost me to do it today, in this era of e-tickets and "discount" or "low-cost" airlines. Same constraints: fly four days from now to Chennai, three days after that to Vizag, another three days after that back here to Bombay. I punched in all these details into my nearest online booking engine and selected the cheapest option (of dozens offered) each time.

The flights it gave me: Bombay to Chennai on Air India Express. Chennai to Vizag on Kingfisher Red. Vizag to Bombay on Jet Konnect. "Discount" airlines all.

The total for all three flights: Rs 12182.

In 21 years, the cost for this three-flight trip has risen from Rs 1365 to Rs 12182, a factor of 8.92.

Of course there has been inflation all through that time. Does inflation account for this rise in the cost of flight tickets? Well, on this page, I learn that between 1969 and 2010, "the average inflation rate in India was 7.99 percent." Apply 21 years of that rate to Rs 1365, you get Rs 6858.

Today's ticket price, Rs 12182, is nearly twice that amount.

Ah, you say, but 7.99 is the average since 1969. Perhaps inflation has been generally higher than that in the years since 1990? Well, that's a fair assumption. On this page, I found a table listing year-by-year inflation rates from 1980. Take the numbers from 1990 onwards and apply them to Rs 1365: you get Rs 9500.

Today's ticket price, Rs 12182, is nearly Rs 2700 greater than that amount.

Every time I hear one of those nonchalant claims about how the cost of air travel in India has dropped since the coming of competition for Indian Airlines, yes every time, I think of numbers like these: Rs 1365, Rs 6858, Rs 9500, Rs 12182.

And then I know just what those nonchalant claims are worth.

***

As an aside, for Rs 1365 to rise to Rs 12182 in 21 years, inflation would have had to be just under 11 percent in every one of those years.

As another aside, I have not included in the Rs 12182 the amounts I'd have to pay for food of sorts on those flights today, compared to zero in 1990.

As a third aside, if your reaction to this is "So you want to return to the days of lousy IA service?" please spare me. That's not the point here.

49 comments:

NightWatchmen said...

It would be interesting to see how much of the 12182 is actually flight cost that goes into the pockets of the airlines and how much goes to the government in the form of taxes. It may be that flights are cheaper in that the airlines offer it for cheaper but the Airport Congestion Fees and Taxes are what end up making up most of the amount. Just a thought though, as far as the end user is concerned it does not really matter.

MinCat said...

but dilip i think people are comparing to 10 years ago when a discounted one way ticket hyd delhi was 10K

Anonymous said...

On your anecdotal ticket were there any government subsidies? Changes in cost of fuel? Newer planes? The exercise you did is one of rumination rather than estimation.

Dilip D'Souza said...

Let's see: the comparisons that tell us that competition has brought fares down never have mention of subsidies or fuel cost changes or newer planes.

But when someone says, hey, it seems to me I'm paying the same or more now for my flight than I did x years ago -- then, suddenly, they need to take into account the subsidies and fuel and plane costs.

This is not to suggest there should be no competition (one reason I have the last sentence in the post). It is to argue with the contention that we are paying less for air tickets now than we did before. (i.e. a claim in language like this: "Think of what we paid for air travel when there was only IA to choose from, and what we pay now").

MinCat, I remember flying 10 years ago, of course, but I don't remember what I paid for tickets then. This 1365 fare from 1990 has, for some odd reason, stuck with me.

Abi said...

Dilip: My own recollection mirrors what Mincat said. In the mid-to-late 1990s a Bangalore-Delhi-Bangalore ticket used to cost about 10-12K [this ballpark figure sticks in my mind because it was a bit more than my monthly salary back then!]

Then the huge drop happened when the likes of Deccan Airways started offering deeply discounted fares.

[I don't know what the Bengaluru-Delhi-Bengaluru sector would now cost -- 15-20K, I would guess.]

So, it seems to me that the huge bulk of the increase in air fares happened a long time ago -- during the early-to-mid 1990s, the early years of "economic reforms."

Anonymous said...

Well the reason I said ruminate is because we expect more from your deeply analytical and computer-scientific mind as compared to the lower-price claims originators.You did not exceed the rumination threshold and painted yourself with the same brush.

Prithwiraj said...

@abi
concur with you
@dilip
(restating what is said on twitter)
you need to compare prices with the mid 90s just before deccan entered market. unlike 21 yrs ago, this was still a competitive market

Dilip D'Souza said...

Abi, so the economic reforms led first of all to an increase in air fares? Why did that happen?

Why did the discounted fares not last? It's not only that there's no difference between fares now and in 1990 (in real terms), but also that there's rarely a significant difference between fares from a "discount" carrier and the more routine ones.

As for brushes, I'm glad to paint myself with whichever one comes to hand.

Dilip D'Souza said...

Prithwiraj, I don't get why we should restrict comparisons to just the mid-90s. Why?

After all, when we say that the price of phone calls has fallen steeply because of competition, this would apply not just to the early 2000s when rates first began dropping, but also to 1990 (for example). I clearly remember making a call to the US from a booth in 1990 and paying Rs 60/minute, and I remember that figure going up to a peak of about Rs 90/minute over the next few years. If I compare today's rates favourably to that time, would you tell me I must not?

The sole point this article is making is that it seems to me that I'm paying the same or more for air travel today as I did in 1990. Despite the claims about prices having dropped because of competition in the industry and "discount" airlines.

I could say exactly the same about making long-distance calls.

Prithwiraj said...

@dilip
agree with you. but with so many other factors at play, your reasoning does not disprove that budget airlines have NOT reduced fares


also you are citing a very special case of last minute travel.
try booking those flights 2 months in advance. without dynamic pricing in 1990, you wouldve still paid the same price. but probably significantly less (inflation corrected) now

Dilip D'Souza said...

Prithwiraj, I did what you suggest: booked the same flights for early in September. Result: Rs 8534.

Better than 12182, yes. How does it compare to 6856 and 9500?

Does 8534 make the case that the "discount" airlines have significantly reduced air fares? Your call.

Anonymous said...

Okay then here is another type of brush . This is not the exact answer to your question .. but have you read any studies of this question you are raising? Other than your rather old bill from the travel agent, could you educate the reader, i.e. this one, how you arrive at your conclusions? You are an important journalist who write on matters such as Narmada Dammed and so on, so could you raise the ante here a bit?

Anonymous said...

"Prithwiraj, I did what you suggest: booked the same flights for early in September. Result: Rs 8534"

Also correct for matching month on your aging ticket, day of week of travel, the effects of special events and holidays, the time of day of the flight, the existence of competitor fares on that route and so on. You must do much more work before you can support your claims. It's worse than you think. No longer a "one person one fare" monopoly of Indian Airlines.

Prithwiraj said...

@dilip
interesting. btw i didnt dispute your claim, only the argument. i myself have often found jet tickets cheaper than deccan (before kingfisher takeover, for sectors blr-kol) and wondered what is going on.

there could be collusion, but there are major flaws in online booking software - i've often found that the price of 2 tickets is more than double the price of one! this was about 6 yrs ago, maybe theyve sorted it out now

Dilip D'Souza said...

I get it.

If you say this: "the competition from budget airlines has lowered airfares" -- this claim will be swallowed whole, with no support or evidence expected, and maybe even applauded.

If you say this: "despite the above claim, I seem to be paying the same or more for air travel today as I did in 1990" -- this claim needs to match the month and day of travel, take into account holidays, should be subject to two-month advance bookings, not be last minute, should correct for costs in fuel, should in fact only look at one narrow period in "the mid-90s just before deccan entered market", correct for government subsidies, and take into account the purchase of newer planes.

And maybe some more to come, who knows.

Anonymous said...

"I get it."

Now you are being the savant-idiot. I understand you are trying to highlight the lack of credibility of the claims ( which you are yet to reference ) but such claims are rife in the media and also emanate from corporations. I agree with you there - most of the "information" presented is "disinformation". Read any paper such as the NY Times - supposedly a bastion of journalism. Look at the business reports. Every day, almost, there is an explanation of WHY the stock market did what it did. Always in hindsight of course. It is more or less unadulterated nonsense. They don't have a clue. Have I made your point? Or perhaps you made it. :). Or you can read my book. "Fooled by Randomness" instead.


(Well I paid for it so it's mine, I didn't write it.)

Suresh said...

Let's see: the comparisons that tell us that competition has brought fares down never have mention of subsidies or fuel cost changes or newer planes.

Can you point me to those comparisons, please?

That aside, the correct economic proposition is "Other things remaining the same, increased competition reduces price." The problem in working out whether this has happened is that "other things don't remain the same." This makes inferences in social sciences very tricky. The increase in price that you report could have happened, for instance, because the increase in price due to increased demand offset the reduction in price due to increased competition. You need a proper econometric study to isolate the effect of competition on price.

As a matter of interest, a considerable part of the power of the natural sciences (their higher level of prediction, for instance) is due to the ability to do controlled experiments. If I wanted to answer the question that you ask "scientifically", I would need to create two identical scenarios of the airline industry in India as it existed in 1990. I would then treat one as a control and in the other I would change only one thing, namely, I would allow entry by other airlines into the industry. I would then look at the price in the industry in the two scenarios as of 2011. The difference in price would tell me the impact of competition (because other things are the same in the two scenarios).

As you can see, this is not feasible. The whole subject of Econometrics is all about finding clever indirect ways of doing the "control" so as to isolate the effect that the economist is interested in studying. In recent times, though, Abhijit Banerjee and Esther Duflo (both MIT) have pioneered controlled experimentation in Economics. Still, this tool is not always available.

If you are interested, take a look at Austan Goolsbee's interesting article in Slate about how answering what looks like a simple question "Does TV watching harm kids?" is actually not so simple and how two Chicago economists came up with an innovative way of answering it.

Dilip D'Souza said...

Suresh, one place the claim was made is here.

No doubting the need for controlled experiments and the difficulty of conducting them for these propositions. But surely it is possible to notice that, as I've said a few times, I seem to be paying the same or more for my air tickets than I did back in 1990? In essence, that's what this post is doing.

Vincent said...

You are right that you are paying more and you should pay more.

All the subsidies for the wealthy people who could afford air travel was due to us poor folks being robbed by the neta-babu-lala nexus. Remember that one had to be relatively wealthy to be able to afford to fly in 1990. They had it easy!

You ask why the airfares went up. Because the subsidies that were lifted. That is how it should be.

No subsidies and no competition due to government laws would probably mean that the current price would probably be anywhere between 50 thousand to one lakh rupees.

Notice that more people have access (in terms of affordability) to air travel today than in 1990. That is the real achievement of liberalization. The actual numbers back then were all artificial anyway. What matters is that more and more people get access to what only very few people could afford.

Kiran said...

Interesting post. I had to fact verify with my dad before I posted this. So my dad was working in Neyveli in Tamil Nadu and he was transferred to Calcutta in 1991. The company paid for our relocation to Calcutta. Since my dad keeps detailed account, I asked him how much it cost. He says he has a receipt of 22300 for me my brother and my mom. That works out to just above Rs 7400. I can see tickets available today for 3400. Compared to this figure, wouldn't you say that the prices have reduced ?

One disadvantage of India not being a data driven society, is that we are forced to rely on anecdotal figures.

Suresh said...

Dilip,

There is just one line, almost throwaway, in that article. (That too, in the section titled "Reforming Schooling" which is why I missed it the first time.) I have tried locating something more serious (if you will, academic) but have not been able to locate one. If you find something, I'd appreciate you letting me know.

Jai_C said...

Dilip,

I've broadly suspected much the same over the last 5-6 yrs that I have been flying:
that lowcost fares arent very lowcost at all.

I dont have experience of 80s or 90s. One thing I notice is the huge tax component on the tickets nowadays: fuel surcharge, passenger service fee, airport tax, congestion tax etc. adding upto typically 150% or more of the number mentioned as base airline fare.

Were these taxes the same in the 80s/ 90s? If not could you account for it in the calcs.

After all, if I set the sum total of the taxes at 50% of the base fare, which is still a pretty decent amount, there is a 40% drop in the charge.

However I remember an article from abt 2 yrs ago that reported that the taxes were not being paid to the govt and the airlines were holding on to them. The DGCA or some such authority were forcing the airlines to pay up or refund the amount to the customers. I dont remember what happened with that.

thanks
Jai

Anonymous said...

Dilip,

I am quite sure that the receipt you have from the past does not represent the cost for all three legs. It most likely covers one of the longer legs.

I recall clearly during that time train fares--2nd class non-AC being around Rs. 200/- one way between Madras and Calcutta , which I frequently used. And 1st Ac fares being about 6 times that and close to, but less than, air fares.

In fact, I did a little bit of searching and came up with this article
http://www.nytimes.com/1990/03/11/travel/international-issue-going-abroad-without-going-broke.html?pagewanted=6&src=pm
from the NYT, which states that 2nd AC fare from Delhi to Calcutta was about $35 in 1990, which roughly translated to about Rs 600 given the exchange rate of about Rs 17/$ in 1990 (see page 6 of that article). Air fares were at least double 2nd Ac fare and probably around Rs 1300-1400.

I did take a flight from Calcutta to Ahemdabad in 1989 and IIRC (memory is hazy), I paid around Rs 1400. I don't think you could have paid Rs. 1365 for three legs together.

I do think airfares have fallen in relation general price inflation over these two decades. There was indeed a big spike from 1990 to 1992. This was no caused by liberalization but because the Indian rupee was devalued steeply--from about Rs 17/$ in 1990 to Rs. 28/$ in 1992, which led to a large increase in the major input cost--fuel, which is heavily imported. Moreover, the government under fiscal pressure had to sharply reduce fuel subsidies, so even as global crude oil prices came down from 1990-92, domestic prices actually rose sharply.

Hope that clarifies.

Dilip D'Souza said...

Anon above: I am pretty much certain the 1365 was for all three legs. But I don't have the receipt any more, so there's only my memory, which like with most things isn't what it used to be. Thanks for the research and pointers about fares in that time.

Jai, I have no idea about tax components. Whether with tax included or with two-month-advance fares or whatever, the cost to me of a flight seems essentially the same (or more) than in the past. This is the only point I'm trying to make, albeit using a few too many words.

Suresh, I'll let you know. It's a claim I see made every now and then, though admittedly I have not kept track each time I've seen it.

Remember that one had to be relatively wealthy to be able to afford to fly in 1990.

A statement that could be made, with just as much truth or otherwise, about 2011 as well.

Dilip D'Souza said...

Kiran, we are indeed forced to rely on anecdotal evidence. But I doubt it would be any different anywhere else in the world, if you wanted figures like this from 20+ years ago.

True anecdote: I attended this festival in its inaugural year, I think 1988 or 1989. A pass (actually a wristband) for the whole event cost me $5 then. The next year, the same band was priced at $25. Called the organizers to protest, got a polite person who said they could not remember what the band had cost the previous year, but "no sir, it wasn't $5."

I have no idea what it costs today.

End of true anecdote.

Anonymous said...

One more anecdote. In 1980 your Bom Nyc flight was of the same order of magnitude as it is today.

Dilip D'Souza said...

Didn't fly Bom-NYC in 1980. Didn't fly in 1980, period. I did fly in 1978, does that count?

Anonymous said...

1978! A whole two years difference! Well okay - good enough. Yes is it not that the round trip BOM/NYC is about the same as it was then? One or two grand? Should have been like 10000 USD if it hadn't become cheaper due to .. competition?

Vincent said...

One more anecdote. A bulky computer in 1985 cost more than $1500. Today, a very powerful one costs less than $400.

Your use of inflation figures is wrong when the price was legislated to be "cheap." At what cost did that legislation come? A hundred million starvation deaths, two hundred million dead babies in the infant mortality statistics due to the socialist healthcare system and rampant inequality where only the ruling class was permitted to fly in airplanes.

Dilip D'Souza said...

Didn't fly Bom-NYC in 1978 either. But never mind. Yes, I've noticed for years that US-India round trip fare has stayed around $1000-1500. Why? And why not the same for the airfares I quoted in my post?

Also, I am glad to learn that in attempting to make this argument about airline fares, in addition to everything else that's already been suggested for me to account for, I also need to account for: the price of computers going back to 1985, starvation deaths, legislation, socialist healthcare systems, what class is "permitted" to fly, and infant mortality.

The child sex ratio in the country of Vanuatu and the speed of trains in Vladivostok have not yet been suggested, but I have no doubt that they will be, given time.

Nikhil said...

Yes. Let ujs go back to the good old days of Indian Airlines monopoly. Heck i do not even recollect whether I was able to afford to fly those days. Only certain classes of people coujld fly, jet around to the US, Europe etc. How dare the non-elite get all these facilities?
BTW do any of us recall the balance sheet of Indian Airlines those days?
I never travelled Indian Airlines during those years? But how was the service those days. I did travel by Indian Airlines once in the nineties with some tea served and some elderly somewhat fat air hostesses.
Yes we need to abolish all the private airlines and return to the good old days.

Anonymous said...

"Didn't fly Bom-NYC in 1978 either. "

This non-flying may have been a factor. We shall neglect that effect, dear butterfly.

However consider another thing. Currency conversions in 1978 and 200X. 1365/8=$171 and 12182/45=$271. So in terms of dollars, what you got for $171 in 1978 dollars you get for $271 in dollars of today. This is more similar to the observed changes in the international (say BOM-NYC) flights over this time period than the factors of ten you had in your original post. At its root would be the cost of equipment, oil and pilots all of which are, shall we say, dollar-centric. Now you can add the effects of government subsidies, taxes etc if you like but I imagine those effects would be smaller.

Vincent said...

I also need to account for: the price of computers going back to 1985, starvation deaths, legislation, socialist healthcare systems, what class is "permitted" to fly, and infant mortality.


The price of computers was an example of falling prices in a market-based setup.


The rest of the points in your list above need to be accounted for. This is so because you used a legislated price as your base and ignored the other costs of your airline ticket. Where did the money for your subsidized ticket come from?


It seems to me that you are not used to the average life that many of us have lived because you perhaps came from a privileged family and have this sense of entitlement that other people (especially the poor) exist to make sacrifices to subsidize your flight tickets.


You also imply that legislating the price of all goods and services and the government controlling the whole economy will reduce all prices. Sorry, that was tried and it failed. If the government subsidizes one sector, the money necessarily comes from other sectors impacting other people negatively.


The biggest flaw in your calculation is to compare a market-based price with a legislated price that was intended to subsidize the rich. I am sure you had a good life back then. We, the ordinary people who form the vast majority, did not. We prefer the current setup to the setup in which we suffered and had to subsidize the flight tickets of the rich and powerful.

Dilip D'Souza said...

Ah, here it is: after everything else, paint the guy with the different pov as one of the rich elite, privileged and unused to some "average life", with a "sense of entitlement". Yes, I had a "good life" while everyone else, the "ordinary people", "suffered".

Bankruptcy in arguments doesn't come better than this: the irrepressible urge to paint oneself as poor and underprivileged. Among other things, it shows a profound opacity to the realities of this country.

"the factors of ten you had in your original post."

It wasn't a factor of ten. Please go take a look at the accounting for inflation that happened in the post. Those figures match fairly well the 171/271 you mention.

Dilip D'Souza said...

Also, it's good to note that the biggest strike against Indian Airlines in the '90s that some find worth mentioning is not their service, not their planes, not their fares -- but their "elderly somewhat fat air hostesses."

Anonymous said...

"It wasn't a factor of ten"

Okay now it is getting complicated. My calculation did not explicitly account for inflation. You have to add on the effects of inflation on the USD purchasing power. That is what I meant. I am much too lazy, intellectually bankrupt ( or otherwise busy ) to hunt down those numbers or to follow this argument any further. So I will take a short-cut (or short-circuit) and advise you to understand that air hostesses have not escaped the effects of inflation you rich, elite and bad, bad blogger!!

Nikhil said...

but their "elderly somewhat fat air hostesses."

Add to the above, they were quite grumpy. Point is that these were just gravy trains for many of the powers that be.
Now these same people cannot stomach the fact that many others are able to enjoy the facilities that they had exclusive access to as Vincent mentioned and hence the dubious comparisons. Airline travel being one of them.
This was Patrick French's argument when he skewered Pankaj Mishra.

Dilip D'Souza said...

Ah, so they were grumpy as well.

Wondrous how some folks manage to display their true colours, every time.

After all, this is why we liberalized and reformed our economy: to free such folk from the trauma of being served tea by elderly, fat and grumpy Indian Airlines airhostesses.

Selena said...

Total Inflation. Now you have to book 20 days in advance.

Nikhil said...

After all, this is why we liberalized and reformed our economy: to free such folk from the trauma of being served tea by elderly, fat and grumpy Indian Airlines airhostesses.

Hahaha. Once again completely on the wrong track. The real reason for liberalization was to free the economy from the clutches of a few privileged people and to let others also enjoy the benefits that was in the exclusive grip and to a large extent still is in the exlusive grip of a priviliged few. How many of us could afford air travel in 1990? In the mid to the late nineties some of us could and used Indian Airlines because of limited options available. Then we had to endure what i described earlier. At least today we have options and can afford air travel. Though not like some privileged people who can make whirlwind trips of the US and write tomes about how we should build monuments for Pakistanis.
Just that some people cannot stomach that we can have even t his much of a better life.

Suresh said...

Dilip,

Just a note to say that if you are willing to travel three weeks ahead, then it is possible to travel the same route (with slightly different gaps) for Rs. 7210 according to makemytrip.com. My itinerary had me leaving Mumbai on 20 July, Chennai on 25 July and Vizag on 29 July.

This figure compares well with the Rs. 6858 that you compute based on the inflation rate. (If you take into account subtleties like the fact that fuel costs etc. have increased over 21 years, then it's not bad at all.)

I bring this up only to note that liberalization has brought in subtleties like allowing airlines to adjust their price depending on how urgently you want to travel. I may be mistaken but 21 years back, the price would be the same whether you want to travel 3 days ahead or 3 weeks ahead. Such subtleties make a direct comparison of today's fares with those 21 years back difficult. (Note that even Indian Railways has adopted this differential pricing through its "tatkal" scheme!)

There seems to be an extensive academic literature on the effects of airline deregulation in the US and even Europe but none for India, unfortunately. If anyone finds anything interesting about the Indian experience, I would request their sharing it here.

Suresh said...

Dilip,

Apologies, I forgot Prithwiraj's comment and your response. Anyway, for early September the fare is Rs. 7360, again not substantially different from Rs. 6858.

Anonymous said...

This is definitely a legitimate question that Dilip has raised, and it maybe true of other products/services that have also seen privatization and competition in the last few decades.

Inflation is an important but definitely not the definitive measure by which to judge this. Since it is just an weighted aggregate of how prices of certain goods are rising in the economy. It doesn't capture changes in income and consumption patterns as quickly as prices do. (The baskets and weights of the inflation index are revised roughly every 10 or so years)

One measure which maybe slightly more robust to these changes is what percentage of median urban middle class monthly income (the group to which most flyers belong) does an average 1 hour of domestic flight time cost over the period of a year. In combination with the income percentile of the median flyer.

Or a simpler measure would just be the number of people who fly domestically each year. Because an increasing number of flyers would indicate that flights are indeed more affordable on average (but perhaps not in every case). Wouldn't it?

Anonymous said...

"One measure which maybe slightly more robust "

Anonymous I like your computer-scientific approach however it does not meet the Nonchalance Test. To make an opposing claim Dilip adopts the Nonchalance Method where he rejects every computer-scientific approach. So while your approach rises above and could even be substantial, we must reject it as being unfair, not nonchalant enough. You need to adopt a much more nonchalant approach. You could start with, for instance, "I found my old ticket for an itinerary and carrier identical to Dilip's and in 1990 - and my ticket was Rs 2500.."

Anonymous said...

I guess you have totally forgotten, your wage at that point of time. and also the cost of Fuel. Its a totally absurd comparsion. Also it looks like you still haven got a hold of using the net. You figure of 12 k can be easily beaten down with the latest offers floating arnd..

Vincent said...

Again, you miss the point. The price in 1990 was a SUBSIDIZED price. Like it or not, it was a subsidy for the rich and the poor paid for it.

When you discuss economics, you must be prepared to face this argument because it is a legitimate argument. In your case, you actually compared fixed by the government to the market prices of today and criticized today's prices.

I explained to you how the prices were fixed in 1990 and you refuse to accept the argument. The hallmark of a good thinker is that he or she is willing to learn from others' arguments and accepts the truth when presented with it.

Dilip D'Souza said...

Once more, with feeling. The point of this post is something I underlined early on this page: "it seems to me that I'm paying the same or more for air travel today as I did in 1990."

This is not something that applies to, let's say, making long-distance phone calls, where competition has resulted in me paying dramatically less. But it does apply to air travel, where competition has evidently not resulted in my paying dramatically less.

Subsidies and the like might explain this, but they don't take away from the truth of it: I am indeed not paying dramatically less for air travel than I did in 1990.

The viciousness that some people use in response to questions about the received wisdom of competition only persuades me that such people are themselves unsure of the received wisdom.

A Chrysanthemum by any other name... said...

pls tell: by what growth rate per year has your monthly income grown in the last 21 years (or that of an average middle class person)? The point is that inflation is manageable because income levels have kept pace - this is true both for rural and urban india, and both for rich and poor.

Secondly, what logic is there in comparing general inflation levels to inflation in air tickets? Cost of air tickets are impacted by inflation in very specific items such as jet fuel, which could have inflated higher than general inflation.

A Chrysanthemum by any other name... said...

"Once more, with feeling. The point of this post is something I underlined early on this page: "it seems to me that I'm paying the same or more for air travel today as I did in 1990.""

That may be so, but the reason you are paying more (as per your calculations) is not because competition has been unable to bring down prices - it has. The reason is that you are comparing it to a suppressed base.

I am a fan of several of your articles Dilip, but i think you must accept that this time you are wrong because
1. It seems you are paying same or more is based on an inflation factor. That inflation factor has nothing to do with the cost of operating an airline. Competition can only reduce costs that are part of operating an airline. If the cost of milk falls, this cud affect the inflation index substantially, but will have miniscule impact on cost of the airline, and hence economics of competition cannot be compared with a general inflation index.
2. If you really want to measure the impact of competition on prices, you should eliminate other factors. So, you should apply your inflation rate to the airfare you would have got in 1990 adjusted for subsidies.
3. It is a fact that the newer airlines are much leaner. Check out the number of pilots/other employees for air india vs the new airlines and you will see a stark difference. This dictates a lower cost and therefore lower price (because most of them are mostly loss making or on very thin profits, it is clear that lower costs are being passed on to the customer and not going towards the airlines' bottomline)
4. More people are flying now vs 20 years back, and again anecdotally, the type of ppl on airlines nowadays are sometimes "tapori" types - kind of ppl you would never see on a flight in 1990. So clearly affordibility has gone up. This would not be possible if you are paying "same or more" as compared to the 1990s.