We have barely even scratched the surface of this nation's air travel growth potential yet. There is still a massive growth gradient for India, but this will not be an even, or easy, process.

We are entering a critical time for airlines, not just for India but for the global industry. 2008 is likely to be a formative year, where the global airline business will change irreversibly.

But it is simply not enough to engage in collective hand-wringing and to leave it to the airlines to try to find a way out of the current difficulties.

A key point to recognise is that a large part of the current problem is a global one and largely beyond the control of any airline: fuel prices. Since the beginning of 2007, that item alone has added between 10-20% to the cost of operations. Without that massive increase, there would be no crisis now.

Yet, unlike the oil crisis of the 1970s, the airline business today is also at a pivotal time in its history. Back then, apart from the US carriers, almost all airlines were government owned. While the crisis bit hard, the bottom line was that there was no bottom line. Governments generally subsidised their airlines through the storm, fares went up and traffic slowed.

That can't happen today. Since then, the airline industry is dominated by private investment, subject to consumer trends and is quickly evolving towards a more rational business. But it is in many ways still neither fish nor fowl.

Although much of the original government protection has been removed, its freedom to move - notably by consolidating internationally - is still absent. But the movement for change is on everyone's lips, including many governments'; some airlines, notably Air France-KLM, have used the relaxed mood to move towards rationalising.

If one point emerged loudly from last week's meeting of IATA's airline heads in Istanbul, it was the overriding priority to get governments out of the airline business - to remove regulations, to stop taxing it to death and to stop meddling in the commercial running of the industry. This is a business that is riddled with each of those. And it is as a result of those factors that airlines have never returned their cost of capital, even in good times. So, in future, unless they are able to, many will simply not survive, meaning they will be unable to able to deliver the massive economic social and economic benefits that flow from aviation activity.

In simple terms, airline managers need to have the freedom of action of other industries. That extends to removing ownership restrictions, allowing foreign investment and mergers across borders; not being taxed at every turn - which is sadly a major feature of Indian aviation; and, importantly in India, creating a framework for the development of infrastructure so that the airlines can operate.

The Indian market

There are indeed many influences central to Indian aviation's future that need to be addressed urgently. And, in this respect, if the responses are the right ones, this crisis will in fact offer a welcome opportunity.

There is such a high level of institutionalised inefficiency in India's marketplace that this almost becomes an advantage at a time like now - because it means there are areas where governments can make a difference. But that doesn't mean more intervention. In most cases it means simply getting out of the way. In others, like delivering infrastructure, it means becoming a lot more responsive to real world forces.

That said, there is a real danger that India will merely revert to type and that the old voices will now reemerge, promoting protectionism and negative government intervention. That would simply convert a crisis into a disaster. The airline industry is potentially so important to India's economy that creative action is essential.

Any such actions taken now will have long term implications, so looking beyond the short term, at where we want to be in five years and in ten years, is the right focus.

India's market realities

Fuel prices: The high price of jet fuel in India has long been a major barrier to airline profitability. Because of the unfriendly operating environment and their own intrinsic inefficiency, airlines in India were barely profitable in 2002 when oil was below USD20 a barrel. Profitability with fuel at over USD130 a barrel can be no more than a dream. The current record price levels of jet fuel threaten strategic and long term damage to the entire air transport value chain - and undo much of the good work done by the incumbent ministry of civil aviation.

The fiscal background: since 2004, the sector witnessed long overdue reforms and the aviation growth we have since seen has been a highlight of this government. But the most necesary long term changes in the fiscal regime for the airlines have been overlooked. India still maintains its position with one of the world's highest underlying cost environments for airlines.

Here, stakeholders have failed in their challenge to work together meaningfully to reduce the industry's high structural costs. Where they needed to engage the Ministry of Finance and state governments consistently to highlight these critical issues and press for some relief, airlines failed to present a united and urgent voice. This has been a chance missed.

Is there a future for low fares?: The answer to this question will always be yes. The potential upside in India is still extreme. But on short haul sectors today, low fares are temporarily a thing of the past.

It is these short haul sectors which have contributed significantly to the overall growth of the airlines in India. With their disappearance, growth rates are slowing. For example, the fare between Delhi-Jammu in Sept 2006 was INR1700, against a current level of INR4000, comparing unfavourably with a second class train fare of INR1200. As a result, these communities are now being deprived of access to this new world. Airlines will soon have to cut services on many routes.

The story on larger, more competitive, metro routes is a little more positive. There are still low, but often unviable, fares available on sectors like Delhi-Mumbai or Delhi-Bangalore. Sometimes the fares on metro routes are lower than short haul routes. Unless there is major correction in capacity, this should continue - but, in today's environment, even these are fragile.

The airline outlook:

While the domestic issues are temporary phenomena - with the possible exception of high fuel prices - that offers little comfort for the incumbents. The good news for them is that the ones who emerge strongly from the current downturn will be remarkably well positioned for the longer term.

The needs:

Above all, the progress of the past few years - even if it appears to be souring temporarily now - is a notable achievement, and one to be treasured. Any short term temptation to try to turn the clock back should be staunchly resisted.