The Hindu Business Line : Synergy and the sting

As a first of its kind, the alliance is a fitting response by two battered airlines, but it carries its own downside for passengers, staff and the industry

“There is no point in fighting, because everyone is bleeding.” That pithy self-recognition by the Jet Airways chairman, Mr Naresh Goyal, summed up better than any figures could have just how much the Indian airline industry is hurting, even as it explained why Jet and Kingfisher, erstwhile arch rivals, have sought safety in an operational alliance. The tie-up is a market response to a crisis that has plagued the industry for nearly a year with the major players, Jet, Kingfisher and Air India suffering daily losses of more than Rs 5 crore on account of rising aviation fuel prices, fierce competition, the recent liquidity crunch and falling traffic. The alliance will synergise cost reduction through staff trimming, roughly equivalent to 5 per cent of the combined workforce, rationalise routes, share infrastructure and conduct joint negotiations for fuel and other components. Combined business volumes will enable them gain attractive discounts from vendors — a proposition that may just be viewed quite differently by those vendors who, as vital links in the supply chain, will also have been hit by the same adversity that has prompted the alliance. And there lies the sting in the tail.

From the perspective of the two “bleeding” (Rs 5-10 crore a day) airlines, the marriage of convenience seems the best bet under currently trying circumstances. As a first of its kind it is a more fitting response by a battered industry, in the red by a third of its net worth of Rs 30,000 crore. It does not carry the moral hazards of the industry representative, Federation of Indian Airlines’ first-off-the-block bailout plea of Rs 5,000 crore. But the Kingfisher-Jet alliance carries its own downside that will be felt by consumers, their own staff and industry. Given its combined market share of 60 per cent, that will go up to nearly 78 per cent if their proposed overtures to Air India bear fruit, oligopoly practices may kick in. Vendors in the supply chain may have no option but to offer unsustainable discounts. The rest of the industry, mainly small carriers, may get the short end of the stick if they have to pay higher prices for supplies — as surely they would, given their lower bargaining power. The large-scale layoff by Jet Airways is an unkind blow to many young aspirations.

Passengers, spoilt by one-rupee fares on metro routes, will confront a dramatic but more realistic new phase in air travel: as seats go unfilled, flights between many cities will close, fares are bound to rise. That is an eventuality the Competition Commission will have to watch out for even as policy-makers should consider a reduction in Aviation Turbine Fuel in line with declining crude oil prices.

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