Jet, Kingfisher tie-up plan hits air pocket

Written by Shaheen Mansuri | Mumbai | Updated: Aug 30 2010, 05:49am hrs
It could be curtains for the much-hyped, one-of-its-kind alliance in the Indian aviation sector. Two years after Jet Airways and Kingfisher Airlines announced a strategic alliance to reduce costs and enhance efficiency, the tie-up is likely to be a perpetual non-starter, with Jet officials remaining non-committal. The alliance, by which both airlines had anticipated a total savings of Rs 800 crore, had even come under the competition regulators scanner for alleged cartelisation.

The scope of the alliance, announced in 2008, included code-sharing on both domestic and international flights subject to the approval of the Directorate General of Civil Aviation. The announcement came at a time when the aviation industry was going through a rough patch and airlines in India made collective losses of Rs 10,000 crore owing to the global meltdown.

However, with the industry now witnessing a gradual revival, both airline companies are taking a hard look at the actual gains such a partnership could bring. Moreover, the probe by the Competition Commission of India (CCI)) into the alliance has been another dampener. The matter is now before the SC.

Jet Airways and Kingfisher together have a 45% share in domestic market.

Jet Airways chairman Naresh Goyal, who in 2008 hailed the alliance as a completely new industrial model for aviation in India last week tersely said when asked about it being called off: The alliance was never kick-started, hence there is no question of it being called off. Saroj Datta, executive director of the company, while answering shareholders queries at the companys 18th annual general meeting recently said, The alliance was contemplated in 2008. It has not progressed. We did not sign any agreement for the same. Kingfisher did not comment on the issue.

An analyst who tracks Jet Airways explained, The alliance was announced in 2008 when airlines were in great difficulties. Air traffic had dropped about 30% in 2008-09. Both airlines were desperate to bring down their operating costs at that time. Both carriers also aimed to bring down staff strength by at least 5% of their combined workforce. He further said later both airlines realised there would not be significant synergy benefits since they largely operated different aircraft. While Jet has more of Boeing aircraft in its fleet of around 89 aircraft, Kingfisher deploys Airbus on its network. Also, building a common IT platform for cross-selling of tickets would have cost both airlines at least Rs 100 crore.

The idea of the alliance was to leverage the combined strength of both airlines which together offered 927 domestic and 82 International flights daily, and joint fuel management to reduce fuel expenses.