The Hindu Business Line : Tie-up could reduce overcapacity in the sector

Bangalore, Oct. 14 The alliance between Kingfisher Airlines and Jet Airways, which is being seen as a last-ditch effort to save their respective airlines, could in fact reduce overcapacity in the sector and might lead to raising funds much easier than before.

A former Kingfisher Airlines official said that with reduced load factor and even lesser market share, it was becoming difficult for Kingfisher Airlines to raise funds even through equity sale.

Kingfisher Airlines was planning to raise about $400 million while Jet was planning to raise about $800 million for their operations. But with this alliance in place, it will be easier to convince PE funds as well as other lenders to take a fresh look at the airlines’ funding needs as their load factor and market share will start looking impressive from now onwards, the former official said.

Foreign routes

Both the airlines are also expected to put up a joint front to take on international airlines as foreign routes are seen as much more lucrative than the domestic operations.

Analysts and airline officials say that overcapacity in the industry could in fact reduce by as much as 15 per cent as both the airlines go about rationalising their routes and use the code share effectively.

The scope of the alliance includes common ground handling which could last much longer even if other tie-ups are tied to definite timelines while cross selling of flight inventories will lead to a healthier load factor for each of the airlines.

Network rationalisation is something which Kingfisher Airlines has done successfully with Deccan Aviation and similar synergies on other fronts have, according to its Chairman, Mr Vijay Mallya, led to a saving of as much as Rs 300 crore.

Better utilisation

Both the airlines will also be able to utilise pilots for similar kind of aircraft which could in fact mean better utilisation of the existing set of pilots instead of hiring more of them. They will also be able to manage their fuel requirements much better because of the international operations.

An independent aviation analyst, however, said that while the alliance will be for the short term, different cultures might in fact not lead to a merger. “Kingfisher is flashier while Jet is more sober,” the analyst said.

Related Stories:
Kingfisher, Jet hold talks, may forge operational alliance

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