FE Editorial : Flying in alliance

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: The decision of India’s two largest airlines—Jet Airways and Kingfisher Airlines—to forge a wide-ranging working alliance will help them cut mounting losses arising from high fuel costs and dwindling passenger loads. It will also, hopefully, end the clamour for government subsidies to airlines. The government must, as argued in these columns on Monday, cut taxes and charges to reduce airlines’ operating costs. But the industry will probably need endogenous solutions as well. The two airlines, which command 60% of total domestic marketshare, will jointly manage fuel expenses, cross-sell flights, share some pilots and ground handling staff, allow cross-selling of tickets on each other’s networks and leverage a joint operation deploying 189 aircraft. This unusual move comes at a time when the two airlines are losing $2 million every day and the entire industry is expected to report losses of around $2 billion this year. The strategic alliance could help the two airlines trim their operating costs by 40%. Globally, strategic alliances have been one of the most visible responses of airlines to create competitive advantage for the partners by enabling them to complement each other’s services and achieve scale in marketing and maintenance costs. The first major alliance was established in 1989 between KLM and North West Airlines. The ‘Star’ alliance between Lufthansa and United Airlines took place in 1993 and in 1996 British Airlines and American Airlines got together to form ‘One World’ alliance. These strategic alliances saved the airlines around 50% to 60% of their operating costs and passenger services improved significantly.