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Dr. Vijay Mallya and Mr. Naresh Goyal have just announced an alliance between Kingfisher Airlines and Jet Airways.
They announced only rough contours using very broad strokes. Details are awaited. At this point, no equity investment will be made.
The alliance will include synergies in routes, sharing ground handling and infrastructure, cross-selling of seats, code shares, crews, and frequent flier programs.
A coordination panel, comprising officers of the two airlines, has been formed, to work out the details, towards the goals of the alliance.
CNBC-TV18 reports that Kingfisher has suspended its US operations.
Both airlines are still in the midst of their own mergers. Jet of Air Sahara (now Jet Lite), and Kingfisher of Air Deccan (now Kingfisher Red).
There are concerns of cartelisation given these two airlines control over 60% market share, and the lack of any aviation regulator in India.
Only time will tell. But for now, the advantage is clearly with Jet Airways.
**UPDATE**
Press release received at 23:45 IST October 13, 2008
Jet Airways and Kingfisher Airlines are pleased to announce an agreement to the formation of an alliance of wide-ranging proportions that will help both carriers to significantly rationalize and reduce costs and provide improved standards of service and a wider choice of air travel options to consumers with immediate effect. The two airlines will be able to rationalize their operations and derive the maximum synergies and thereby offer the best possible fares for the benefit of the consumers. However, there will not be any mutual equity investments between the two companies.
The downturn in the world economy has severely impacted the world aviation industry. The rapid increases in and the volatility in the crude oil prices and that of aviation turbine fuel and the slowdown in economic activity has resulted in a decline in air travel both on international and domestic segments of the air travel market.
Worldwide the airline industry has sought to tackle the difficult environment through alliances and joint provision of the best possible standards of service and connectivity to the travelling public by achieving cost and operational synergies and providing extensive connectivity and by offering economical fares. Civil aviation is the keystone of infrastructure development and a key priority of the Indian Government for the development of the economy. The proposed alliance between Jet Airways and Kingfisher is in the national interest by incorporating the international best practice to strengthen the Indian aviation industry.
The alliance will also enable a stabilization of the Indian aviation industry in the larger public interest for the benefit of the customer during the current downturn of the world economies.
The Scope of the alliance will include the following areas:
- Code-shares on both domestic and international flights subject to DGCA approval.
- Interline/Special Prorate agreements to leverage the joint network deploying 189 aircraft offering 927 domestic and 82 International flights daily.
- Joint fuel management to reduce fuel expenses.
- Common ground handling of the highest quality.
- Cross selling of flight inventories using the common Global Distribution system platform.
- Joint Network rationalization and synergies.
- Cross utilization of crew on similar aircraft types and commonality of training as also of the technical resources, subject to DGCA approval.
- Reciprocity in Jet Privilege and King Club frequent flier programmes.
In the current environment of high costs and declining growth this alliance has potential for substantial savings resulting in a benefit to the consumer.
Commenting upon this path breaking alliance, Naresh Goyal, Chairman of Jet Airways said:
“All over the world Airlines have formed alliances in order to become more efficient, improve revenues and provide seamless travel opportunities for their customers. India has witnessed tremendous growth in the past which has slowed down considerably. In this environment the Jet Airways – Kingfisher alliance represents a completely new industrial model for aviation in India which would be based on an unprecedented depth of cooperation between the two companies. There will be huge cost savings and revenue enhancement opportunities arising from this alliance.”
Dr. Vijay Mallya, Chairman, Kingfisher Airlines said:
“This is a quantum leap forward in the evolution of Indian aviation which will benefit customers by delivering the most comprehensive integration in the industry. Both Jet and Kingfisher fully realize that better understanding of supply and demand in this capital and labour intensive industry is the key to profitability and enhancement of shareholder value. I look forward to this alliance delivering superior quality, cost savings, flexibility and enhanced consumer value which is the hallmark of all successful alliances.”
While maintaining their separate legal entities and brand entities both Jet and Kingfisher will examine co-branding opportunities and have formed a core committee of senior management personnel from both companies who will drive the various identified initiatives forward with immediate effect under the overall direction of Mr. Naresh Goyal and Dr. Vijay Mallya.
Signed
NARESH GOYAL
Chairman
Jet Airways (India) Limited
VIJAY MALLYA
Chairman & CEO
Kingfisher Airlines Limited
Very interesting development. I hope aviation industry realizes their business and marketing strategy such that in future their ticket pricing is based on actual costs and the reasonable market price. I would dread their practice of pushing the cost recovery for a later day. Each delay adds the cost.
Even though I also work in the company which has similar business model, I am against this business model. But due to its unique position and market leadership, it has been posting profits for last 2-3 years. It took about 10-15 years to post the first profit quarter. This can not be prescription for others and other businesses. Their loss is ultimately a nations loss. I am hoping that Business Chambers takes up this issue seriously and addresses with the members. This is a serious issue and we can not let our businesses to fail. They are backbone of our nation’s economy. I am ready to paying the actual market rate rather than have to shell out 4 times tomorrow in order to save 30-40% today. I hope we take this opportunity to learn and fine tune our economic decisions.
Is there no equivalent of an Anti-trust law in India? This goes against every concept of competition.
Srivathsa
Unfortunately the Competition Commission has no teeth, and the AERA bill has been languishing in parliament for over a year.
Jet is about 35% market share, and Kingfisher is about 25%. If they decide to cartelise, there is precious little that can be done.