Jet, Kingfisher strike alliance to cut costs
Largest private-sector carriers Jet Airways and Kingfisher Airlines have agreed on a wide-ranging working alliance to help them battle slowing growth and high fuel costs, the companies said.
By Agencies |
MUMBAI: Largest private-sector carriers Jet Airways and Kingfisher Airlines have agreed on a wide-ranging working alliance to help them battle slowing growth and high fuel costs, the companies said.
The airlines decided to work together "in (the) larger national interest and (to) help stabilise India's aviation sector," according to a joint statement issued by the two companies late Monday.
India's crowded airline sector has been hit by huge losses on the back of a recent surge in global fuel prices that have forced fare hikes.
The airlines were pushed to a combined loss of 938 million dollars in the fiscal year to March 2008. Jet, which bought rival low-cost airline Air Sahara for 340 million dollars in April last year, has several common routes in India with Kingfisher.
"India has witnessed tremendous growth in the past which has slowed down considerably. In this environment the alliance is a new industrial model for aviation in India," said Naresh Goyal, chairman of Jet Airways. Both companies said there will be huge cost savings for the airlines, but declined to provide details.
"This is a quantum leap forward in the evolution of Indian aviation which will benefit customers through a comprehensive integration," added Vijay Mallya, chairman of Kingfisher Airlines.
The Jet-Kingfisher alliance involves joint fuel management, ground handling, network rationalisation and crew sharing.
There would be no exchange of equity and both the airlines will maintain independent legal and brand entities, they said.
A formal proposal would be sent to the India's civil aviation ministry, for clearance. Analysts expect India's aviation sector to post a near two-billion dollar loss in the financial year to March 2009.
Higher domestic fares in India have pushed travellers back to trains and cars or even seen them opt not to travel. Short-haul routes have been particularly hard hit.
"India's aviation industry has seen unusual and tough times. They (airlines) needed to do something urgently to stabilise the industry," Kapil Kaul, head of the India region at the Centre for Asia-Pacific Aviation, said.
But some analysts question whether the new tie-up could reverse overall fortunes. "We do not see a major cutting of costs. The ground crew staff as a portion of total airline staff is minuscule," one aviation analyst with a private brokerage firm told AFP on condition of anonymity.
He added that maintenance costs reduction would be "minimal" as Jet has a largely Boeing fleet while Kingfisher Airlines has an Airbus fleet.
Analysts said the outlook for India's airlines is poor due to a sluggish growth in passenger traffic and a lack of clarity about when they will become profitable.
The airlines decided to work together "in (the) larger national interest and (to) help stabilise India's aviation sector," according to a joint statement issued by the two companies late Monday.
India's crowded airline sector has been hit by huge losses on the back of a recent surge in global fuel prices that have forced fare hikes.
The airlines were pushed to a combined loss of 938 million dollars in the fiscal year to March 2008. Jet, which bought rival low-cost airline Air Sahara for 340 million dollars in April last year, has several common routes in India with Kingfisher.
"India has witnessed tremendous growth in the past which has slowed down considerably. In this environment the alliance is a new industrial model for aviation in India," said Naresh Goyal, chairman of Jet Airways. Both companies said there will be huge cost savings for the airlines, but declined to provide details.
"This is a quantum leap forward in the evolution of Indian aviation which will benefit customers through a comprehensive integration," added Vijay Mallya, chairman of Kingfisher Airlines.
ADVERTISEMENT
The Jet-Kingfisher alliance involves joint fuel management, ground handling, network rationalisation and crew sharing.
There would be no exchange of equity and both the airlines will maintain independent legal and brand entities, they said.
A formal proposal would be sent to the India's civil aviation ministry, for clearance. Analysts expect India's aviation sector to post a near two-billion dollar loss in the financial year to March 2009.
Higher domestic fares in India have pushed travellers back to trains and cars or even seen them opt not to travel. Short-haul routes have been particularly hard hit.
ADVERTISEMENT
Jet shares fell 0.21 per cent or 0.6 rupees to 289.4, after surging 17 per cent intra-day Tuesday at the Mumbai stock exchange. Kingfisher shares fell to 50.15, down 1.2 rupees or 2.34 per cent, after gaining 16.9 per cent early on."India's aviation industry has seen unusual and tough times. They (airlines) needed to do something urgently to stabilise the industry," Kapil Kaul, head of the India region at the Centre for Asia-Pacific Aviation, said.
ADVERTISEMENT
"It is good to see that competitors are talking to be collaborators." India's airline industry has seen consolidation in the past 12 months through the Deccan-Kingfisher merger in December last year, the state-run Air India and Indian combine and the Jet buyout of loss-making Air Sahara.But some analysts question whether the new tie-up could reverse overall fortunes. "We do not see a major cutting of costs. The ground crew staff as a portion of total airline staff is minuscule," one aviation analyst with a private brokerage firm told AFP on condition of anonymity.
He added that maintenance costs reduction would be "minimal" as Jet has a largely Boeing fleet while Kingfisher Airlines has an Airbus fleet.
Analysts said the outlook for India's airlines is poor due to a sluggish growth in passenger traffic and a lack of clarity about when they will become profitable.
Start a SIP with as low as ₹500 with ET Money App!
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
