OVER the past few weeks whispered advice has circulated among frequent flyers in India. Do not book any tickets in advance with Jet Airways, the country’s second-largest airline; it might not be long for this world. The suspicions had a grain of truth. On August 9th the carrier took the extraordinary step of delaying the planned release of its results for the three months to June. On August 27th it delivered the bad news—it lost $189m in the quarter, compared with a small profit in the same period of last year. It wants to raise capital to avoid running out of cash.
Jet Air is not the only Indian carrier to stall this summer. Airlines stocks have fallen even as Indian shares have performed decently overall (see chart). On August 14th SpiceJet, India’s fourth-largest carrier, announced a surprise loss of $5m in the second quarter. A month earlier IndiGo, India’s largest airline, posted a 97% year-on-year decline in net profits for the same period. And in June the government abandoned its planned privatisation of Air India, the flag carrier which has lost money for a decade and is saddled with $7.8bn in debt, after it attracted no bidders.
At first glance, the Indian aviation market should be booming. Domestic “revenue passenger kilometres”, a measure of bums on seats, grew by 18% in the year to June. IATA, a trade body, forecasts that by 2025 India will be the world’s third-largest aviation market. What has crippled airline profits this year are rising costs and flat fares, explains Rahul Kapoor of Bloomberg Intelligence, a research firm.
The price of jet fuel has surged in tandem with that of oil (up from $26 a barrel in 2016 to over $70). IndiGo’s fuel bill rose by 54.4% in the three months to June, compared with last year. Making matters worse, since January the dollar, the currency in which fuel is priced, has strengthened by a tenth against the rupee, the currency in which ticket revenues are booked.
Despite higher oil prices, IATA expects airlines globally to make $33.8bn in profit this year. Many carriers hedge against swings in fuel prices and exchange rates to ensure sudden spikes do not bankrupt them, says Mark Martin, an aviation consultant based in Dubai. But airlines in India did not do this. Poor corporate governance is likely to be responsible.
In another departure from industry norms, Indian airlines have not been able to pass those higher fuel costs on to flyers by raising fares. Indian travellers are “the world’s most price-sensitive”, says Mr Kapoor. If fares rise, they take the train instead—or stay at home. Whereas low-cost Western carriers, such as Ryanair and Southwest, recoup what they lose on discounted fares with offsetting fees for checked-in luggage and extra legroom, Indian passengers simply forgo the extras.
The Indian government does not help airline profits either, says Robert Mann, a former airline executive. India has Asia’s highest aviation-fuel taxes. Airlines are forced to fly some loss-making regional routes to gain access to the best airport slots in Delhi and Mumbai.
But the industry’s underlying problem is overcapacity. State subsidies for Air India mean some routes are flooded with too many seats. The larger issue is a race for market share in what will become one of the world’s biggest markets for air travel. This problem looks poised to get worse before it gets better. Qatar Airways has plans to start a new full-service carrier in India with over 100 new jets. GoAir and Vistara, two fast-growing Indian carriers, plan to launch their first international flights in October. The lure is tomorrow’s profits. The upshot is losses today.
British universities set up shop overseas
JOHOR BAHRU, a sprawling, gritty city in Malaysia, would once have been an unusual home for a British university. But just off one of the main roads out of town, past signs to Legoland, sits EduCity, a development which is home to three British institutions, each a humid five-minute stroll from the other. The University of Reading is filled with greenery and gleams in the sun. Newcastle transplants the architecture of the university’s Tyneside home to Malaysia. Southampton completes the unlikely trio.
These outposts are part of a broader trend. Britain’s 136 universities now have 39 foreign campuses abroad, educating 26,000 students, from Middlesex University’s site in Mauritius to Glasgow Caledonian’s branch in Bangladesh (see map). Only Australia, which has a much smaller higher-education system, can boast a similar ratio of home to overseas campuses.
In addition, there are many more students taking British degrees taught by foreign institutions. In these arrangements British universities provide a curriculum, and sometimes teaching staff, training and support, in return for a juicy fee. In all, in 2015-16 there were 703,000 students studying for a British higher-education qualification overseas. Including international students in Britain, British universities have 1.1m foreign students on their books, a number fast catching up with the 1.9m British students they are educating.
The universities’ overseas footprint began to grow fast in the 2000s, as they rushed to meet demand in growing economies, mostly in Asia. “Like in any other industry, universities dipped their toes in the water, then took the plunge,” says Vangelis Tsiligiris of Nottingham Business School. High-ranking universities were the most likely to set up campuses, in the hope of attracting better staff and more students, both of which would help them up the international rankings. In the early days, less-fancy universities were happier letting local colleges teach their qualifications. Increasingly, the more prestigious universities prefer this approach too. All universities wax lyrical about the benefits of fostering international research links; in some cases it might even be true.
The attraction for students is clear. A British degree holds a promise of quality, explains Mark, a local undergraduate at Sunway University, a Malaysian institution just outside Kuala Lumpur. Studying at home allows students to avoid Britain’s increasingly strict visa regime. It is also much cheaper. A joint Lancaster-Sunway degree costs around 28,000 ringgit (£5,300, or $6,820) a year, compared with £9,250 for a Lancaster degree in Britain—which would also involve hefty travel and living costs. In the past five years, Sunway’s student numbers have trebled, to 7,500. The offer of British qualifications has been crucial, says Graeme Wilkinson, its vice-chancellor—although, he adds, having a water park next door did no harm.
For countries like Malaysia, importing foreign universities offers a way to build institutional expertise quickly. Two decades ago, Malaysia began to position itself as a hub for higher education, seeking to attract students from around the region, as well as from farther-away Muslim countries, explains Sarah Deverall, head of the Malaysian branch of the British Council, which promotes British culture abroad. Malaysia now has more students studying for a British qualification than any country bar Britain itself. Others places have courted foreign universities for different reasons. Dubai, for instance, encouraged them to set up shop to cater to the children of its large expat population.
Despite support from host governments, dealing with a foreign higher-education system is hard work. Sam Weston, who works for the University of Reading in EduCity, admits that recruitment has been slower than hoped. “It’s early days,” she explains. “We’re still getting the word out.” Both Wolverhampton and Aberystwyth have closed campuses in Mauritius, after failing to attract students. Last year Warwick scrapped plans to build a campus in California, following difficulties in navigating local regulation. Others relied too heavily on the enthusiasm of individual university officials in Britain, and floundered when those people moved on.
Universities also have to adapt, sometimes uncomfortably, to local politics. In July an academic was removed from the management board of Nottingham’s Ningbo campus—a joint venture with the Chinese government—after writing an essay critical of the 19th Party Congress, a meeting of government bigwigs. Restrictions in Malaysia mean there are no student unions on the British campuses there.
Partly as a result of these difficulties, most British universities selling their qualifications abroad prefer to get a local institution to do the teaching. But this arm’s length approach is not entirely trouble-free. Some worry that the quality of education is not always up to scratch. The Quality Assurance Agency, which helps regulate British universities (including their overseas empires) says that malpractice is rare. But some university officials privately doubt that teaching is always equal to that found in Britain, as is meant to be the case.
All of this means universities are beginning to tread more carefully. There has been a move away from the “hands-off model”, in which universities provide certificates and little else, to more genuine partnerships, says Janet Ilieva, a higher-education consultant based in Britain.
A number of governments in big markets are also growing more cautious. Two years ago, Malaysia banned any new links with universities not in the top 5% of a global ranking. At the same time, China reportedly halted approvals of new joint-venture campuses. Expansion is also kept in check by the fact that universities are reluctant to do anything that might water down their British character. David Willetts, a former higher-education minister, has complained that he was unable to convince any university to create a vehicle to list on the stock market to promote a global higher-education brand.
Last year growth in the number of students studying for British degrees overseas slowed, to just 1%. But university officials don’t expect the lull to last long. Some British universities are considering setting up continental campuses after Brexit, in order to sidestep expected restrictions on immigration. A looming demographic dip in the number of British 18-year-olds, and threats by politicians to cut tuition fees at home, are also making universities look abroad. As demand for degrees grows around the world, it is likely that British universities will become ever more international.