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Budget airlines may court M&A to survive: report

india Updated: Mar 13, 2009 20:36 IST
Lalatendu Mishra
Lalatendu Mishra
Hindustan Times
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After Jet took Sahara, and Kingfisher swallowed Air Deccan, who is next?

Amidst unconfirmed speculation on SpiceJet and Go Air getting engaged in merger talks, global aviation consultancy Centre for Asia Pacific Aviation (CAPA) has said that a fresh round of consolidation involving low cost carriers (LCCs) could be possible within the next six months.

“The next round of consolidation may be strategic in nature. Market and investors will support sensible consolidation, which is designed to restore profitability. CAPA expects such activity in first half of 2009/10,” the think-tank said in a

Budget carriers such as IndiGo and SpiceJet would require significant funds in the future and thus the next round of consolidation would occur in the LCC space especially when full service airlines do not have money to get engaged in
further acquisitions, says the report.

It said since demand is expected to remain weak for the next 9 months or so, airlines needed to cut capacity in terms of number of seats further by 7 to 10 per cent. This is in addition to the nearly 11 per cent erosion suffered in the past 10 months or so.

Quoting from the report, Kapil Kaul, CAPA’s South Asia chief, said, “There is a further need to cut capacity, which is equivalent to grounding 20 aircraft.”

“The second round of consolidation will be for pure survival, though the first round was for creating a larger airline with global ambitions,” Kaul said, adding that the first round was not successful.

“Air Sahara, which should ideally have been left to fall and exit, continues to create problems for Jet Airways. The Air India merger has been a non-starter due to lack of leadership, while Kingfisher is still digesting Air Deccan,” said.
Foreign airlines could not participate in any consolidation in the short term as they are barred by regulation.