However, the huge cumulative losses of the two entities could pose a major challenge to the players in the short term, according to Surbhi Chawla, a research analyst with Angel Broking.
Speaking to FE, Chawla said, The accumulated losses, at around Rs 2,000 crore, are huge and would be a major concern for the companies. The combined entity would take time to turn around and break even. However, in the long term, the merger could offer better cost-management owing to sharing of resources and better route rationalisation. Kingfisher and Deccan could emerge as a major competition to Jet and Jetlite, with the two combinations commanding a market share of 30% each in India, Chawla said.
Deccan Aviation and Kingfisher Airlines on Wednesday agreed to merge on the recommendations of consultants Accenture, to cut down costs. The merger also enables the relatively younger Kingfisher to fly international when Deccan will secure overseas flying license after it turns five in August 2008.
The combination of the two jointly operating 550 flights a day with 76 aircraft is expected to become the largest aviation company in India. The two brands, Deccan and Kingfisher, would continue to be separate brand entities and serve their respective niche markets.
On Thursday, Deccans share prices closed at Rs 277.90 on the NSE, down 5.94%.
According to an analyst, Kingfisher will have increased prime time departures and frequencies through its subsidiary. One more advantage is the availability of a larger operational base that will help Kingfisher tackle competition. Further, synergies will be achieved through cross utilisation of qualified personnel and infrastructure, he added.
Engagement manager with consultant company Zinnov, Amit Aggarwal pointed out that while losses were of immediate concern, the combine would be able to manage a turnaround. The combination would be better equipped to manage the losses, than if the companies (Deccan and Kingfisher) were to do it as separate entities.
Meanwhile, the companies are already said to be mulling ways to raise further capital jointly.