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Jet-Kingfisher alliance may lead to airfares hike

india Updated: Oct 14, 2008 21:09 IST
Lalatendu Mishra
Lalatendu Mishra
Hindustan Times
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The coming together of two of India’s biggest airline rivals, Jet Airways and Kingfisher Airlines, that together control a 60 per cent marketshare along with their low cost arms, JetLite and Kingfisher Red (Deccan), could lead to monopoly resulting in further rise in airfare.

Analysts feel that though their immediate priority is to curb the mounting losses estimated at Rs 18 crore a day and to reduce capacity by 30 per cent to bring down the supply of seats in synch with market demand, the medium- to long-term objective would be to increase fares to make money.

“I don’t think they will increase fares immediately,” said Kapil Kaul, CEO (India), Centre for Asia Pacific Aviation (CAPA), an international aviation consultancy. “But once capacity comes down with route rationalisation, fares would go up by 15 per cent in a phased manner.”

“Their ultimate aim would be to drive fares up to at least the cost levels but at the moment the economy can not afford any additional increase,” said Ankur Bhatia, executive Director, Bird Group, an aviation consultancy. “Last week, bookings dropped by 20 as compared to the same week last year due to rising fares.”

Naresh Goyal, chairman, Jet and Vijay Mallya, chairman, Kingfisher on Monday night categorically denied any move to form a cartel leading to a monopoly.

“It is not a cartel,” Goyal said, while explaining the alliance. “The aim is to curtail losses, which are going up every day. Irrational pricing of tickets in the last three years has affected all airlines.”

“We will pass on the cost benefits to passengers and this alliance will enhance shareholder value,” said Mallya. “The benefits for both the airlines would be humongous.”

But passengers have doubts.

“Whatever they say on the face seems dicey,” said Sudhkar Reddy, president, Air Passenger Association of India. “Their ultimate objective is to survive at the cost of passengers.”

“I am waiting for the government’s response on this development and will seek the Prime Minister’s intervention,” Reddy added.

However, CAPA’s Kaul does not agree. “A cartel could have been possible had both them been profitable,” he said. “Under the current circumstance, the alliance is more for their survival. But government must keep an eye on it.”

In the months ahead, both the airlines are expected to lay off surplus staff as their would be no duplication of several functions. Only last month both had laid off 1,100 people. In the 30 per cent capacity reduction, thousands of employee are expected to lose jobs. Both the airlines have a combined staff strength of more than 20,000 people. Several employees of who spoke to HT expressed concern over their future.