A New Partnership Takes Flight

Under normal circumstances ,it would have been a complete shocker but these are abnormal times and one where companies across the world are simply hoping to tide over. By the look of things we’re in for a long haul of uncertainty and lesser growth. In India the effects of these times have hit the Aviation Industry the hardest. Not only are companies under threat from volatile fuel prices but also a domestic consumer who is simply unwilling to pay more for an airline ticket. So when Naresh Goyal of Jet Airways and Vijay Mallya of Kingfisher Airlines decided to come together, airline pundits were hardly surprised. Rumors that the two biggest private airline companies in India would come together had been going around for quite some time.

For both companies this partnership is exactly that; a mutually beneficial business alliance which will see their staff and crew work together in an effort to reduce their operating costs and therefore their mounting losses. By no means is this a merger because both companies view themselves as more than capable of dominating the Indian airline business.

The coming together of Kingfisher and Jet Airways is therefore an arrangement which will see them joining hands for an interim period. The basic idea is to merge their existing operations so that they can share their workload, staff, crew, planes and therefore each others’ profits while cutting down their losses. Even though Vijay Mallya mentioned that the two companies had come together for the ‘long term’; it is highly unlikely that they will continue to do business once the current economic situation turns to the positive.

For Kingfisher Airlines, partnering with Jet Airways is an intelligent move and critical for their survival. While both companies have been hit by the increase in crude oil and turbine fuel, the loss has been greater for Kingfisher considering the fact that they are a much younger company and therefore have made far lesser in terms of revenue as compared to Jet which has been around for a pretty long time.

In fact Kingfisher has been unable to break even with their investment and this has led them to compromising on their services, which was incidentally the highlight they used to launch themselves into the Indian aviation industry. Added to this is their acquisition of the low cost ‘Air Deccan’ franchise which hurt their wallet quite a bit.

For Jet Airways, this partnership will bring in a certain degree of certainty, a much needed commodity in this economic crisis. They can take the foot of the pedal trying to outdo Kingfisher which is their nearest competition and concentrate on increasing revenues to offset losses.

The Indian airline sector will however be dismayed with this partnership. It creates a near 50% monopoly for the Kingfisher-Jet combine. While both companies will cut down on routes which are beneficially profitable, their domestic base should strengthen based on the number of flights each company has been operating so far.

Critical to both their futures will most definitely be the type of ticket pricing they can come up with and the type of passenger they want to attract. The businessman who doesn’t mind paying more or the middle class consumer who is willing to fly but only at a lower price.

A best of both worlds approach has not worked in the past.