Deal set to change market dynamics

Written by Shaheen Mansuri | Mumbai, Oct 14 | Updated: Oct 16 2008, 05:04am hrs
The strategic alliance between rival carriers Kingfisher Airlines and Jet Airways will boost mutual growth for both the entities, say analysts and aviation experts. The alliance will also enable both the airlines to fly through turbulent times and change the market dynamics in the ailing sector. Against the backdrop of high crude oil prices and falling passenger load factors, many airlines across the globe are scrambling to forge similar alliances to enable stabilisation in the sector. The alliance includes code-sharing agreement and operational synergies at various levels spanning marketing, ticketing and ground-handling activities.

Says Sandeep Shenoy, strategist, Pioneer Intermediaries, Both the airlines were losing Rs 6-7 crore a day on account of the economic downturn which affected their international and domestic network.

Though aviation turbine fuel (ATF) costs have softened in the past few weeks, the value of the greenback has hardened resulting in negative impact on the bottomlines of the airlines.

Also, most of the airlines are on the defaulting list of the Airports Authority of India (AAI) on parking and landing charges. The association is expected to ease pressure on both the airlines as there is a code-share agreement, which will result in lesser turnaround time for the aircraft.

He further adds that it is difficult for the airlines to get loans from the banks in these tough times and banks have significant exposure to the two airlines. The move was inevitable, says Shenoy.

However, another analyst adds that smaller players like SpiceJet, Indigo and GoAir will be impacted since Jet-Kingfisher together command a 60% market share and are now in a position to dictate the air fares. Low cost carriers (LCCs) will have to follow the air fare strategy on the lines of both the airlines. But there is a possibility of other carriers also evaluating such an association.

Also, the average ticket realisation is low currently and has to move upto Rs 250 to impact the bottomlines of the carriers. Endorsing the alliance, another analyst adds the move will help Jet and Kingfisher bring back customers who have switched to other modes of transport due to overpricing and suspension of flights.

The need of the hour is to increase the occupancy levels with rational fares and good connectivity. The alliance should help both the airlines minimise losses and make optimal utilisation of fleet, resources, staff and expertise, added the analyst.