Airline consolidation may make air travel more expensive in India
21 August 2007
Air Deccan's Bangalore-Hubli route — the low-cost carrier's inaugural flight four years ago — may be wound up soon. The reason? Kingfisher Airlines, which bought a controlling stake in Deccan earlier this year, has proven to be more profitable on this sector. Why maintain a loss-making route when a profitable one can do the job?
The recent alliances between low-cost and full-fare airlines — Jet-Sahara and Kingfisher-Air Deccan — are now leading to rescheduling of flights designed to improve airline profitability. But what this means for customers is that some of the low-cost options that they have enjoyed will no longer be available.
Executive chairman of Deccan Aviation Capt G R Gopinath said that a joint team from the two airlines is looking at how best to service various routes profitably, with each airline drawing on the other's strengths. Acting CEO of JetLite Garry Kingshott said JetLite's new schedule has been developed with Jet Airways, to ensure that the two do not compete with each other. It comes into effect from 1 September.
Consolidation through mergers and acquisitions (M&As) helps airlines achieve economies of scale, through fleet enlargement, common maintenance, repair and overhaul (MRO) facilities, training requirements, etc. They can merge administrative, marketing and sales, ticketing and other functions, and reduce the overheads of the merged airline. Most important, by reducing competitive pressures and over-capacity, it eliminates competition that can be destructive.
Experts opine, however, that airline consolidation in India as seen so far confers only limited benefits, as in both cases so far, the two airlines have not merged. For example, Jet Airways will face much less competition from JetLite than it did from Air Sahara, because of their very different operations, and it will gain better terms by being able to order aircraft in larger numbers for the two airlines.
But it may not be able to merge the administrative and other functions of the two airlines. Neither will it be able to use the JetLite fleet, because of its very different layouts and facilities. The acquisition, therefore, does not add to the Jet's fleet strength. The Deccan-Kingfisher alliance is even less integrated. For the airline industry as a whole, therefore, there is no reduction in the number of competitors.