This will be my absolute last article on anything related to DrukAir - No More Honking!
The American poet and educator, Henry Wadsworth Longfellow believed that "If you only knock long enough and loud enough at the gate, you are sure to wake up somebody." Poor fellow – obviously he did not meet any Bhutanese in his life time --- otherwise he would have known that the Bhutanese don’t – and even if they do, they would be nothing more than walking zombies – clueless, sightless, heedless and mindless!!
More than a year back, late Draksho Tsering Wangda called me up from Gelephu and said;
“Yeshey --- I want to take up the issue of the DrukAir with the Royal government – will you find time to prepare a background paper for me on the issue so that I have an understanding of the issues in their entirety?”
Thus, on January 3, 2024 at 7:50 AM (going by the meta data embedded in the MS Word document I sent him) I began putting together the following article which ran into all of 11 pages!!!
I do not know if he ever took up the matter with the RGoB … he never told me … and now he is no more 😢. Not wanting to preempt whatever Draksho Wangda was planning … I decided not to publish the article on this Blog, or any where else. But few days back … a short conversation with a friend convinced me that I should publish it – because, as the friend and I both of us agreed, it is not necessary that one’s endeavors will actually wake the dead – but for sure posterity will bear witness that I knocked and knocked and knocked ---- 19 times!!!
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When & Why
It is accepted that the essential attributes of a sovereign state are some of the following:
1. Defined Territory
2. Settled People
3. Standing Army
4. A Government with control over its territories
5. A National Flag Carrier
What Is A National Flag Carrier?
In the context of international law and relations, a national flag carrier is either an aircraft or ship that flies the national flag of a sovereign state.
It is universally accepted that all ports of call or landings in host countries extend to national flag carriers’ preferential treatment and access to certain routes and markets.
Simply stated, the global community will endorse a national flag carrier only if it is floated by a state that is accepted as wholly owned and administered by a sovereign state.
Creation Of DrukAir – Our National Flag Carrier
I believe that it is in this context that His Majesty the IVth Druk Gyalpo worked tirelessly for more than three years to establish our National Flag Carrier - the DrukAir. The laborious journey began in 1981. By 1983, DrukAir was finally able to start commercial fights, having cleared the many hurdles placed in the path of its creation and launch. At last, the last of the missing spokes in the orb of our nationhood was put in place.
DrukAir debuted with one unpressurised 18-seats Dornier 228-200 turboprop aircraft. The country’s only usable airport, in Paro, had an airstrip measuring less than one-and-a-half miles long. It can be said with certainty that in creating DrukAir, His Majesty the IVth Druk Gyalpo could not have harbored any lofty commercial aspirations - I believe that it was his way of making a statement of nationhood, an assertion of independence, an announcement to the world that Druk Yuel was an independent nation with the necessary apparatus of nationhood in place.
Over the years, the national carrier began to grow, both in fleet size and in scope and scale of operation. Today, the airline boasts of the following fleet of aircrafts:
The Bhutanese people’s investment in the airline runs into tens of billions of Ngultrum – that is pretty substantial for a country whose annual GDP is less than Nu.280.00 billion.
National Flag Carriers Around The World
DrukAir’s singular history raises the question: Are there other national flag carries around the world that serve the national interest over narrow commercial interest? There are - to name a few:
Britain’s erstwhile Imperial Airways, formed in 1924, was specifically created to provide air links between Britain and its far-flung empire. No profit motives here. KLM followed suit, providing air links to the Dutch East Indies. Belgian’s SABENA Airlines serviced the Belgian Congo. Air France’s predecessor, Air Union, flew to French colonies in West Africa. Profit-making was furthest from the minds of these governments.
The Malaysian government considered Malaysia Airlines (MAS) “an essential instrument in the nation-building process”. The carrier’s primary focus was in servicing domestic routes rather than international ones. At the time, the Malaysian government’s focus was in integrating different regions as one nation. Here too, profit was nowhere in the scheme of things.
All of these airlines were established not as institutions of profit but as instruments aimed solely at providing control, prestige and national integration. Of course, some were also created as state apparatus for espionage. For instance, during the Cold War era, the US government used flight attendants of the now defunct PAN AM, its unofficial flag carrier, to perform espionage duties. Mossad regularly used El Al, Israel’s national flag carrier, for the same purpose. KGB agents infiltrated the state-owned airline Aeroflot to carry out intelligence and counterintelligence activities. South African Airways was used by the Bureau of State Security for espionage work.
As these examples attest, whether for espionage or for connectivity, it is clear that national flag carriers were created solely to serve a national interest. Narrow commercial interests seem to be the least concern to the states that owned these carriers.
Destiny’s Lost Child
From all the above, it is clear that a national flag carrier exists because it fulfills a social and national mandate - far above and beyond narrow commercial interests.
DrukAir cannot be an exception. Indeed, our national flag carrier has every reason to remain an apparatus in the service of the nation, because of all the airlines named above, DrukAir is the only airline that is financially unable to operate as an entity of profit. It is simply impossible, unless it does so at the cost of the nation and the people of Bhutan – which is what it is doing now - with impunity.
Somewhere along the line, DrukAir got its priorities confused and muddled. Even while it was clear, beyond any doubt, that the country’s operating conditions were extremely hostile, the airline began to pursue commercial aspirations - an ambition that was, and remains, untenable.
Today, the airline stands resolute and unbending - chasing an impossible dream, adamant that it will stand its ground, mindless and uncaring that it is causing jeopardy to the lives and livelihoods of a few hundred thousand of its principal shareholders: the Bhutanese people. The country’s vital tourism industry lies crumbling and helpless, at the mercy of a near-monopoly that no one seems to have the power to control or manage.
Now we are told that the DrukAir has lost 80% of its market share to operators from outside the country. Not that they care – because it is not money out of their pockets!
I have always held the view that the DrukAir is not a commercial entity, but an essential service apparatus - like the Food Corporation of Bhutan (FCB), the Bhutan Post (BP), the Royal Bhutan Army (RBA), the Royal Bhutan Police (RBP) etc. But strangely, the airline has been misled into believing that it is a commercial entity with profit at the core of its existence. Unfortunately, despite its self-assigned mandate to operate as a commercial entity, the airline forgot the fundamental objective of a commercial enterprise: to generate profit!
The airline may have been allowed to fail in its most fundamental duty, through neglect and lack of stewardship. It may have caused other institutions that depended upon it to fail. It may not have contributed in monetary terms to the national exchequer. But one must admit that DrukAir has contributed in other noteworthy ways. It has unshackled Bhutan from the country’s landlocked isolation. It has given wings to the Bhutanese people to traverse the world beyond. It has validated Bhutan as a sovereign state.
All things considered, however, we have to accept that DrukAir cannot be mandated to make a profit. There is simply no way it can, unless it does so, as it does now, at the cost of our national interest.
Challenges To The Airline
Paro airport is located in a narrow valley boxed in by steeply rising mountain peaks. Located in a geographically complicated site, it is classified as one of the most challenging airports of the world. Only a few dozen commercial airline pilots in the world are certified to fly into and out of Paro airport.
The operating conditions are difficult. Depending upon the season, dipping temperatures and windy conditions, coupled with high altitude, impose limitations on the operating hours of the aircrafts. At times aircraft are able to haul only half of their carrying capacity. Flight diversions and cancellations due to adverse weather conditions are common. The myth is that DrukAir has a monopoly in Bhutanese airline business. But the reality is that no international airline operators are willing to come to Bhutan. If that were not the case, under the bilateral ATA/ASA agreement with countries where DrukAir flies, airline operators from those countries have the right to fly the Bhutanese airspace. But they don’t, because the passenger flow is minuscule, the operating conditions are extremely difficult, and the operating costs are prohibitive.
Network Of Domestic Airports
The country has three additional domestic airports that DrukAir serves: Batpalathang, Gelephu and Yonphula. Here, too, the situation is no better. Given the restrictive length of the airstrips in these locations, only small airplanes with minimal carrying capacity can be operated.
To aggravate the situation further, none of these three airports is equipped with bowsers - specially designed truck-mounted tankers that deliver jet fuel to the aircrafts. This is an essential service that every airport must be equipped with. Gelephu airport does not have one. Yonphula airport does not have one, either. Batpalathang does have one, but it is said to be a leaky apparatus. Because of the leaky tanks, it is said that the aircrafts captains refuse to accept fuel from it, for fear that the fuel may be contaminated - a safety measure that cannot be compromised.
Consequently, since the start of commercial services, Druk Air’s planes have been required to carry tons of extra jet fuel for the return flight, rather than carrying passengers. Add to that the fact that the load is already less than half its rated carrying capacity, due to high altitude and unpredictable weather conditions. The result: extremely high operating costs and a flight schedule that is akin to the roll of the dice.
Given these compelling circumstances, the way forward is clear for the government and for the airline company: focus on up-scaling carrying capacity; expand route coverage, service, safety and security; work toward creating the enabling conditions for others to generate jobs and income. In other words, support the government and the tourism industry by rationalizing fares. What the airline cannot earn, the tourism industry will augment a thousand-fold.
Sadly, more than four decades since its birth, DrukAir is like a lost and misguided child by the wayside. It cannot take pride in the fact that it has served a national cause, nor can it claim to have filled the national coffers with abundant profit.
Standing In The Way Of Bhutan’s Potential
Bhutan prides itself as a tourist destination of choice. We talk of the many tourism awards we have won in the international arena. We boast about our pristine environment. We advertise our unique cultures and the magnificent fortresses that adorn our hilltops and cliff faces. We revel in our colorful festivals that leave tourists breathless. Yet, after sounding the drum beat for close to half a century, our annual tourist arrivals is less than 8% of neighboring Sikkim with almost the same tourist appeal as Bhutan. Sikkim recorded a whopping 1,321,000 tourists in 2023 – as opposed to Bhutan’s 103,000 for the same period.
In large part, DrukAir is responsible for this failure. As a critical transport service provider for Bhutan’s vital tourism sector, DrukAir has had a ripple effect across the broad spectrum of the business chain. When tourism is hurt, the repercussions are felt by the government through reduced tax collection and a drop in foreign currency earning. Beyond that, its impact is immediately felt by the hotel and restaurant industry, the handicrafts sector, the transport industry, the farming community, pony drivers, roadside trinket sellers - even the wooden walking stick fashioners at the base of Taktsang. As we all know, the tourism industry provides employment to the highest number of Bhutanese people, earns the highest foreign exchange and is among the very few net gain industries in the country.
Sadly, DrukAir has been negligent in its responsibilities. Coupled with the ill-timed Tourism Levy Act of Bhutan 2022, it has caused serious damage to the country’s tourism industry. While the Tourism Levy Act has been partially rectified, DrukAir and its exorbitant airfare continues to cause mortal damage to our vitally important tourism industry.
DrukAir’s fares are simply too high - to the point that potential visitors believe that they are being taken advantage of, because of the near-monopoly prevailing in the Bhutanese air transport sector. Prospective tourists are forced to choose competing tourism destinations such as Sikkim, Darjeeling and Nepal for their annual holiday trips.
Because of DrukAir’s unreasonably exorbitant airfare, more than 80% of Bhutan-bound Indian tourist traffic is diverted to enter overland through neighboring Jaigaon. Add to that the recent rule that tourists are not required to be hosted by a local tour operator, and the situation is wide open for entrapment by the operators across the border. Given the enabling conditions that have been created by exorbitant Druk Air fares and tourist traffic being forced to enter through Jaigaon, the following situations have developed:
1. Jaigaon operators have taken over business which otherwise would have been handled by the Bhutanese operators.
2. Bhutanese tour operators have become secondary players, even acting as mere commission agents for foreign operators. It is rumored that in some cases, Bhutanese tour operators conduct their entire business - from quoting the land cost to preparing the daily itinerary - then ask their Jaigaon counterparts to act as the official tour operator. This way the local tour operators do not have to pay tax on the business because all transactions are conducted in cash in the name of the Jaigaon operators.
3. In this situation, all tour payments are collected/routed through the principal operators at Jaigaon. This means that Bhutan-bound Indian rupees terminate their journey inside the bank accounts of Jaigaon operators. Payments to service providers within Bhutan - such as transport operators, hotels, guides, restaurants etc. - are transected in local ngultrums. This explains why Bhutan has seen a dramatic drop in the inflow of precious Indian rupees.
4. Since the business is unregulated and mostly handled by the Jaigaon operators, taxable tourism business turnover goes undeclared - resulting in a substantial drop in tax collection by the DRC.
5. Over time, the Indian rupees earned by the Jaigaon operators from business usurped from Bhutanese tour operators, are sold to the Bhutanese at a premium ranging between 3-10%, thereby devaluing our ngultrum that is officially traded at par with the Indian rupee. Even worse, unofficially traded Indian rupees are used to under-invoice imports from India, further impeding tax collection.
6. Arising out of the introduction of new way of doing things under the recently introduced Tourism Levy Act of Bhutan 2022, the $$ inflow has experienced severe dip - to such a level that now the RMA and the DRC is said to pretend surprise – rather they feign ignorance - as to why the $$ earning from the tourism sector has gone down so drastically. They know very well that the reason is that under the new rule, only the SDF of US$100.00 is required to be deposited with the DoI – balance amount needed to cover the cost of hosting the tourists – IS NOT REQUIRED to be remitted officially. This has enabled many tour operators to seek cash payments from the tourists, or their foreign agents – resulting in reduced foreign exchange inflow – in addition to loss of tax collection as a result of a large amount of tourism business being conducted clandestinely – in CASH and without any official record of business transection.
7. It has ushered in an era of immorality – it has created enabling conditions for guides, drivers and even police personnel to siphon off hundreds of millions of the monument fees collected from the tourists.
Additionally, at the third-country level, DrukAir’s high fares have caused the following situations to develop:
1. Loss of company business to competing airlines in the region.
2. Loss of revenue to the company through loss of turnover, because what business that can be had is being taken up by competitors in the region.
3. Diversion of Bhutanese tour operators’ business to competition across the border, because inbound/outbound tourists find it cheaper to fly the Bagdogra route and employ operators in Jaigaon instead of the Bhutanese tour operators who are going out of business for want of work.
4. Loss of hundreds of millions in foreign exchange, including third-country currency such as dollars. Because dollar-paying potential visitors find the air fare too expensive, they choose competing destinations such as Sikkim, Darjeeling and Nepal for their annual holiday trips.
Need For Shift In Policy
To my mind, it would be simple to make DrukAir a respectable organization: categorize it as a service organization with a mandate to provide social/national service. This will require the government to subsidize its capital and operations costs to some extent. This is necessary because, on its own, DrukAir cannot survive, unless it exacts costs on others, which is what it is doing - on the country’s tourism sector.
Need For Subsidizing the DrukAir
DrukAir is a critical transport service provider for Bhutan’s vital tourism sector. The government should provide it subsidy - there should not be an iota of hesitation - so that the airline can help boost the country’s tourism business. It is the only way by which DrukAir can keep fares within the realm of sanity. Doing so will provide direct and indirect benefit to the country’s mortally maimed tourism industry and, consequently, to the society at large.
In this regard, Bhutan would not be a unique case. Such subsidies are specifically provided by governments around the world to provide a competitive edge to fledging local industries; to balance unfair competition from superior economies; to act as a counterweight to harsh and unyielding economic challenges; to heighten economic buoyancy; to prevent financial losses; to keep costs down so that ancillary industries can grow and prosper; and to ensure that critical services are not discouraged due to challenges outside their scope and competence.
In this sense, subsidies are not a loss but a responsibility of the government. Because DrukAir is a critical service provider, it deserves whatever subsidy is necessary to keep it afloat so that it can continue to serve an important national interest.
If subsidies were to be considered losses, we should forthwith close down our schools and hospitals and the civil service. They exist only because they receive 100% subsidy from the state.
Not all enterprises that the state creates are profit-centric. In 99% of the cases, they are service-oriented, either required to engage in areas that are sensitive or required to perform a service that no commercial entities are willing to undertake.
A case in point is the Food Corporation of Bhutan (FCB) - another state-owned enterprise of the RGoB. This organization is not expected to make profit for the state. Its existence is solely for the delivery of essential foods to remote and underserved locations where enterprises of profit will not venture. Through government subsidies, the FCB is expected to ensure food security by delivering essential foods at affordable prices. Imagine FCB trying to make a profit!
We have to remember that even the most advanced economies of the world provide subsidies to selected industries - the transport sector being one of the highest-subsidized sectors. Every year, the European Union (EU) subsidizes its transport sector to the tune of €73 billion. Likewise, the transport sector in China receives a government subsidy in excess of US$130 billion a year. Germany is routinely accused by competing neighbors of continuing to operate its money-losing airports; it continues to subsidize them as a veiled way to gain competitive edge over others.
DrukAir’s Differential Pricing Policy
As if high airfare were not enough, DrukAir has adopted a strangely unfair differential pricing policy that discriminates between nationalities. It is not clear why this is beneficial. Given Bhutan’s strong ethical profile, it is important to treat every visitor as equal. We cannot be seen to prefer one nationality over the other.
Lower Fares For The Bhutanese
What is the logic behind lower fares for the Bhutanese nationals? It may be perceived to benefit the Bhutanese people. But as we can see, the Bhutanese flying the DrukAir are those who are rich and can afford to pay or, they are travelling bureaucrats on official business whose bills are paid for by the state. Needy Bhutanese people do not fly DrukAir - they take the bus. In my view, this is yet another example of the airline’s disservice to the country.
Preparing For Change
A direct initiative from the Throne, work on the upgrading of Gelephu airport has already started – slated to be ready within the next 4-5 years. The current airstrip is slated for massive expansion to accommodate larger aircraft.
This renovation opens up boundless opportunities for the DrukAir. Unfortunately, Gelephu International Airport is also likely to attract international competitors. Thus, DrukAir will need to dismount its high horse and prepare to beat the competition by being a step ahead to claim and retain market share. That forward-looking work cannot begin too soon.
Making A Case For Change
To summarize, I believe our leaders need to revisit the mandate of DrukAir in the clear light of day. Why has this national jewel been allowed to fade? How can we restore it to its original national purpose - and do so in the context of modern financial and commercial realities? How can DrukAir once again dedicate itself to a single and high-minded purpose: to serve the nation and people of Bhutan?
Let us begin the job NOW – before someone else steals our thunder – completely and irrevocably!
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