• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Brand Quest
• The New Manager
• BL Club
• Smartbuy

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth
• Events 2007

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

Our Bureaus

Mumbai/ New Delhi, Oct. 14 The proposed alliance between Kingfisher Airlines and Jet Airways will help the two arch rivals to pare down their operational costs and improve margins, but questions remain whether it would actually help in bringing down air fares.

Opinion in the aviation sector remains divided on whether the unexpected alliance between the two aviation majors, announced late on Monday night, will benefit fliers, as much as it would benefit the airlines.

The airlines made it clear that there will not be any mutual equity investments between the two companies.

While the alliance, doubtless, would give the two airlines a stronger bargaining power with suppliers and help them rationalise costs, it would also give them more belly room to dictate prices, as the two together will hold about 60 per cent market share, analysts feel.

A Crisil analysis points out that execution of the alliance on the ground could prove to be the key challenge as both airlines would seek to maximise profits and returns for their respective shareholders. “Most of the other such alliances globally are between carriers that operate in different geographies, offering services on complementary routes. This is not the case with this alliance where both the carriers are operating in the Indian markets,” the Crisil analysis says.

A joint statement issued by the two airlines late on Monday said the alliance will enable a stabilisation of the Indian aviation industry for the benefit of the customer during the current downturn of the world economies.

Mr Naresh Goyal, Chairman, Jet Airways, said the alliance represented a new industrial model for aviation in India. There would be cost savings and opportunities to increase revenues. World-over, airlines had formed alliances to become more efficient, improve revenues and provide seamless travel opportunities. Mr Vijay Mallya, Chairman, Kingfisher Airlines, said the two airlines realised that better understanding of supply and demand in this capital and labour intensive industry was the key to profitability and enhancing shareholder value.

While maintaining their separate legal entities and brand identities, both Jet and Kingfisher will examine co-branding opportunities. The two airlines have formed a core committee of senior management personnel from both the companies, which will drive the various “identified initiatives.”

Many aviation analysts, who did not want to be quoted, feel that the two airlines will not touch fares in the immediate term, especially as they have taken recent price hikes for the ensuing festive season, but in the months ahead they may look at increasing fares. “I feel their immediate objective (after the alliance) will be to improve the load factors. But later on they may take price increases to sharpen the viability of their operations, especially as they are facing some strain on their finances,” an analysts with a leading Mumbai-based brokerage said.

Most of the low cost airlines are not unduly perturbed by the alliance. “The alliance does not have any major impact on the airline as long as we keep our costs low and fares affordable,” Mr Aditya Ghosh, President of IndiGo Airlines, says.

Adds Mr Kishore Gupta, Director, SpiceJet: “It’s a bit too early to comment on yesterday’s developments. We have to see how it will impact low cost airlines and then take a call on if we need to forge such an alliance. In one way it could lead to curtailment of capacity and hike in fares.”

The general feeling in the aviation industry seems to be that announcing the formation of an alliance is one thing and implementing the decisions taken quite another.

“Alliances are complicated to implement and require a lot of working. The two airlines operate different variety of aircraft so they will not be able to use a pilot flying an Airbus aircraft of Kingfisher to operate a Boeing aircraft of Jet Airways. Similarly, the technicians of the two airlines will not be able to service and maintain each others separate aircraft. How much costs cutting they will be able to achieve through pooling their airport resources remains to be seen,” said a senior airline officer.

More Stories on : Alliances & Joint Ventures | Airlines

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Copyright © 2008, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line