Battle for the skies

Updated: Mar 24 2006, 05:30am hrs
The only certain thing about the AI-IA merger plan being cleared by the Prime Minister is that it ends the impasse over the on-again, off-again idea. Much like the BSNL-MTNL merger thats been on the cards for long, the AI-IA one has been on the anvil for years. The PMs approval clears the air and is, therefore, to be welcomed. But whether it will enable the PSU airline to claw back market share remains to be seen.

There is no doubt that of the three optionssynergy, holding company and mergermerger is the best. It will give the PSU airlines the balance-sheet strength and fleet size needed to compete with the Jet-Sahara combine, if and when approved. Both are necessary to take on nimble private sector players. And with private airlines being allowed to fly to more and more destinations overseas, it is only fair that PSU airlines, too, should get this freedom and not be hampered by an artificial carving of turf between domestic and overseas operations. The merger does that by exploiting the synergies between the two.

With the domestic passenger market expected to increase from 19 million to 45-50 million by 2010, the decision has not come a moment too soon. If approved, the Jet-Sahara combine will command close to 50% of the domestic market, say independent analysts, with a combined turnover of over Rs 7,000 crore. With 12 scheduled operators and many more slated to enter, the AI-IA combine will be a smaller player in comparison. But to the extent that it will certainly be much bigger than any of the other players, it will keep the Jet-Sahara combine in check. That is good news for air travellers. Competition between players not too disparate in size is the best way of ensuring the benefits of competition percolate down to consumers. But for that to happen, PSU airlines must get a free hand. More than size, the bigger constraint on effective competition is the PSU character of AI and IA. The government needs to address that, as much as balance-sheet size and fleet strength.