MUMBAI / BANGALORE / NEW DELHI: It is a clear sign of desperate times. Two of the fiercest rivals for control of Indian skies, Jet Airways and Kingfisher Airlines, embarked on an extraordinary move to work out an operational alliance in a bid to rein in runaway losses.

Following marathon meetings between Kingfisher chairman Vijay Mallya and his Jet Airways counterpart Naresh Goyal over the weekend, the two companies on Monday announced an alliance, which includes sharing of codes on domestic and international flights, leveraging the joint network, joint fuel management, common ground handling, cross-selling of flight inventories, network rationalisation, cross-utilisation of crew, reciprocity in Jet Privilege and King Club programmes. The proposed code-sharing is subject to the approval of the Director General of Civil Aviation (DGCA).

Terming it as “pathbreaking”, Mr Mallya said the alliance will help both the companies save cost and thereby, enhance shareholders’ value. “This will benefit customers by delivering the most comprehensive integration in the industry,” he said. Mr Goyal said: “India has witnessed tremendous growth in the past which has now slowed down considerably.

This alliance represents a completely new industrial model for aviation in India, which would be based on an unprecedented depth of co-operation between the two companies. There will be huge cost savings and revenue enhancement opportunities arising from this alliance.” However, the companies did not quantify the amount that the alliance would save.

In the current environment of high costs and declining margins, the two bleeding airlines, which together accounts for over 60% share of India’s aviation market, have clinched the alliance to prune their combined daily loss – estimated in the region of Rs 15-20 crore – that seriously undermined the cash flow.

Earlier in the day, speculation of a possible merger between Kingfisher and Jet Airways sent the stocks of these companies through the roof. While the Kingfisher stock rose by 35.7% to close at Rs 52.65, the Jet scrip jumped 11.4% to close at Rs 292.50 on BSE. However, in the late evening joint statement, the companies denied the possibility. “There will not be any equity investments between the two companies,” the press statement said.

Interestingly, the airlines were engaged in fierce rivalry even till a few weeks ago, with Kingfisher’s international foray heightening the competition. “The basic idea is to synergise the operations of the two airlines to curtail costs by doing common ground handling and not competing with each other on domestic as well as international routes,” a source in the industry said.

Industry analysts said the move by airlines to hike fares in a synchronised manner has resulted in a sharp drop in passenger volume. A source pointed out that Air Deccan, which used to fly almost seven lakh passengers a month just a year ago, has seen its traffic decline to around 3 lakh passengers now.

source: Economictimes

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