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Will consolidation help fliers, airlines?

india Updated: Jun 01, 2007 05:35 IST

Life may not change overnight for the Indian flier as supply continues to be in excess of the demand, and Indian carriers will keep inducting new planes. This will keep fares down over the next 3-6 months.

But with the emergence of three big airline combines (Air India-Indian, Jet-Sahara and Kingfisher-Deccan), who will control over 80 per cent market share, the joy ride for Indian fliers may not last for long. ‘‘Once they are able to rationalise routes and integrate operations, fares will increase. From then on, fares are likely to stabilise, said an expert. For airlines bleeding from fare wars, the consolidation couldn’t have come at a better time.

‘‘The game has just begun with the emergence of three major grouping, said Kapil Kaul, CEO of Indian sub-continent, the Centre for Asia-Pacific Aviation, an airline consultancy. ‘‘Fares would move more towards a cost structure.’’

Kingfisher and Deccan are likely to rationalise their network to ensure that they don’t cannibalise each other but the networks support each other. The Centre for Asia-Pacific estimates that the two airlines, with a combined valuation of close to $1.1 billion - $1.2 billion, will save nearly Rs 300-400 crore this fiscal itself.

But not everyone thinks this deal would consolidate the market. ‘‘I would call the merger of Air India and Indian consolidation. But Jet acquiring Sahara or Mallya acquiring Deccan will not necessarily consolidate the market. ‘‘Instead, it is designed to strengthen the market shares of the acquiring carriers,’’ said Steve Forte, a former CEO of Jet Airways.

‘‘Common shareholding in itself is not likely to change much. We have the same capacity chasing the same market, just under bigger umbrellas, therefore, its hard to see fares rising in the short term,’’ said David Huttner, Managing Director, planely spoken, an Antwerp (Belgium)-based international aviation consultancy.

For instance, Jet and Sahara may initially run as two carriers, but there will be a need to cut costs by eliminating duplicate functions, which will result in job loss, and a more rational network design integrating the operations of the two entities.

But how would this impact others like SpiceJet, Indigo and GoAir? ‘‘It is likely that many of the remaining players will have little choice but to scramble for their own partnerships in order to remain relevant,’’ added Huttner. Didn’t someone say, the game has just begun.