Â Indian Aviation industry is seeing a lot of turbulence since last year. The airline industry has already seen $2bn losses. Crude at $140/barrel did not help their cause. Rising crude prices and falling domestic demand has been the two killers for the industry. Sensing that the scenario is not going to change any time soon, two of India’s largest airlines has said enough is enough and started making love. Kingfisher and Jet Airways has decided to share facilities to cut costs. It is not an exact Mergers or an Acquisitions. It is collaboration.
Pending some approvals these are the things they will be doing:
- Manage fuel expenses jointly
- Share some pilots
- Cross-selling of tickets
- Sharing training facilities
- Accepting each other’s frequent flier miles.
This collaboration helps the customers too. You have increased counters to get your tickets. You can use the frequent fliers you have earned for destinations, which were not available earlier. Thanks to the expanded network. Kingfisher Airlines has gained 9.8% and Jet Airways has gained 4.1% following the alliance news.
If you look at it closely, they are 4 airlines at collaboration. Jet Airways has acquired Sahara and Kingfisher has acquired Deccan Aviation. If you take this as a merger of sorts you can only imagine the plight of other airlines like GoAir, Paramount and SpiceJet. Even the national carrier Indian Airlines has merged with Air India. With the rising costs and the passengers dwindling, mergers or collaboration is the only way for a smoother ride.
Love is in the air. I see a lot more love to follow.
There is a dark side to this alliance. Jet Airways and Kingfisher together control 60% of the market. If it wasn’t an alliance and it was a merger, antitrust bells would ring immediately. If the biggies are not able to compete individually I am not expecting the smaller airlines like GoAir and SpiceJet to compete. I see more consolidation. More consolidation means fewer players and hence the monopoly. If a player controls more than 50% of the market then consumers lose. They will not have a bargain because there is no competition.
This would put us back to the nineties when the air travel is a privilege. I just hope the falling crude price provides them with some relief and leave the fares as is. I don’t want to spend a fortune on a next flight.