Jet to fly higher on Sahara's wings
Rex Mathew
20 January 2006
With the acquisition of Air Sahara, Jet Airways has concluded a major consolidation in the fast growing domestic aviation sector.
Putting an end to endless speculation and denials, Jet Airways announced yesterday that it would acquire Air Sahara for $500 million in an all cash deal. A joint management group has already been appointed to oversee operational integration of the two airlines.
Jet has gone on record saying that it would absorb some, not all, Air Sahara employees depending on requirement and merit. And no, cricket fans would not see the Jet logo on the shirts of the Indian cricket team. The team sponsorship would be transferred to another unspecified Sahara group company.
The financial media has been speculating about the exit of the Sahara group from the airline business for the last couple of months. The airline has been losing money and the group is also reportedly facing financial problems in other businesses as well. At least three domestic airlines, including Jet, were said to have been in talks to buy out the struggling full service carrier.
On the other hand, Jet Airways has been one of the biggest corporate success stories of the '90s, emerging as the largest domestic carrier while maintaining service standards comparable to well established international airlines. It is also one of the most profitable airlines in the world in terms of operating margins and also one of the most richly valued airline stocks anywhere in the world.
Rationale for the acquisition
With the entry of low cost airlines, the market shares of established full-service carriers have dropped over the last one year. Even though the air travel market is growing at a rapid pace, a significant part of the growth is being cornered by the low cost carriers. This is clear from a comparison of current market shares of various domestic carriers with last year figures.
| Airline | 2004 end | 2005 end |
| Market share in % | ||
| Jet | 42 | 36 |
| Indian + Alliance Air | 37 | 31 |
| Sahara | 18 | 11 |
| Air Deccan | 1 | 7 |
| Kingfisher | 0 | 6 |
| Spicejet | 0 | 3 |
After the merger, the combined market share of Jet-Sahara would be close to 45 per cent even after a possible rationalisation of routes. That would give Jet a significant lead over second placed Indian.
