I had written and had forecast about the possibility of a mergers and acquisitions in my first aviation article on this blog site titled : "2005 Year End Aviation Review". At the time of that writing talks were not going on between any one for mergers and acquisitions. However, some Airlines were linking some of their services with other operators in those areas where a synergy existed, such as pooling of spares, ground handling and so on.
It is being announced now, January 19th 2006 that Jet Airways has taken over 100% of Air Sahara stock and the board of Jet Airways has approved the take over. The market share of the combined entities will be a little over 50%, making this, the Airline with the majority of the market share in India. Market share, ofcourse, does mean some positives for the Airline sector but not so good for the consumer in terms of low fares in the long run.
Latest information from a TV interview with Naresh Goyal, CMD Jet Airways is that they will not retain the Air Sahara brand. He goes on to say that their occupancy levels are around 73% on an average and therefore the remaining seats could be sold at much cheaper prices without incurring any additional cost. This indeed will be a blow to any so called LCC since the passenger on Jet, even while securing a low fare, will still end up getting full service and would not need to buy bottles of water and snacks on board.
Watch this space for more information on what’s going to happen after all the dust settles. I don't want to sound like a doomsday prophet but the next couple of months will see some of the so called Low Cost/budget Airlines tottering on the brink of closure forcing perhaps more mergers and acquisition. The ability of most the current crop of players (except Jet Airways in my opinion) to raise additional and crucial money for their acquisition of Aircraft and equipment, is very suspect. I am sure that some of the IPO's of these carriers will not fetch them the value that these companies are looking for. That will force some Airlines to cut their expansion plans, consolidate and in the worst case scenario, even shut down.
4 comments:
Dear Capt Murthy: Nice to spot you on blogs. It;d be interesting to know of your opinion on why Sahara sold the airline!
I work with Air Deccan. More about me at http://www.anuragjain.com
Dear Mr. Anurag, visited your web site as well, thanks for the link. M&A in the Airline business is inevitable especially when one carrier is under greater loss and the scope for upping the levels of competition on the same sectors becomes unviable. If you can't beat them, join them! Thats been their mantra this time around.
With the arrival of several other carriers including the one you work for, the levels of competition has gone up. Unlike the US (where the bulk of my experience is), the difference between the Indian travelling public and his/her counterpart overseas is that which is qualitative. Having said that, due to market pressures, there has been the inevitable M&A deal between US Airways and America West and more mergers are due later this year.
Talking of the Indian scenario, as you know, the fuel and other overheads are going through the roof. There is no hedging facility as yet for Indian carriers and in any case, oil price levels are not at a point where it would be favourable to hedge, either. Looking at all the Airlines here, staffed with highly paid foreign management staff such as CEO, COO, CFO, Heads of maintenance and so on (including your Airline as you are aware) and the "not cheap" foreign pilots (the latter is justified due to the shortage), one can understand the other pressures of being in this environment. Air Sahara built up a brand, carried their long term losses, ensured that they got the International rights and when they got a hyped valuation, decided to sell. They are better off than Jet, in this acquisition.
The Airline that you work for, as you are aware, isn't profitable either. Kingfisher and others tried to lure your company and form a loose alliance of sorts but was opposed by Capt. Gopinath rightly as he prefers a NASSCOM type of organization of all Airlines.
This is a business where losses must be anticipated and the name of the game is longevity. Some of these so called LCC's will not last and be forced to shut shop or merge at some time. Some, like yours and Kingfisher, will have to modify or consolidate your business plan depending on the outcome of the respective IPO's and the ability to raise money. I like Capt. Gopi's bold initiative to create a new niche in Indian aviation scene and enable many first time flyers and I hope Air Deccan remains in the long term.
I am doing a research on Jet-Sahar Merger. In this I want to know about issue from which deal got affacted several times. so please tell me about those all issue..........
Mr. Parakh, thanks for your question but I almost missed seeing it because you have commented on an article I wrote one and half years back! I never go back to my old articles to see ifsome one left comments because my blog posts have crossed 67 posts and now we are at the end of September 2007. This article I wrote early 2006! Please put in your comment on my latest blog next time, thats how I can access the comment and answer them. My latest articles are about singapore, where I currently live, but it is OK to ask aviation related questions on any of my blog articles, even if those are not relevant to the article.
Regarding your question about Jet-Sahara erger, I am not entirely sure what information you require. You could leave me your e-mail id on my latest blog article and I could write back to you, if you have specific questions. Thanks again for writing.
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