Kingfisher, Jet in cost-saving alliance

October 14, 2008

Rival private airlines Jet Airways and Kingfisher Airlines, with a collective market share of over 58 per cent, announced a strategic alliance to help them reduce cost and enhance efficiency.

The alliance, announced in a late night press conference, will involve code-sharing on domestic and international flights, an interline agreement, joint fuel management, common ground-handling services and cross-selling flights through the global ticketing system.

The two have also agreed to cross-utilise crew on similar aircraft types and use common training facilities. Passengers can also use frequent flyer programmes by flying in either of the airlines.

The two companies, however, clarified that there will be no equity investment in each other’s company. A formal merger of the two airlines would not have been possible because the country’s competition laws mandate that airline companies cannot have a market share of over 40 per cent after they merge. Jet Airways shares jumped by 10 per cent and Kingfisher 28 per cent today, ahead of news of the impending alliance.

“Such alliances are taking place all over the globe such as the one with United with British Airways. This is the first such alliance in India,” said Naresh Goyal, chairman of Jet Airways. “It is not a cartel but essentially meant to save costs as airlines are losing money,” he added.

“This alliance will result in major cost saving, improve efficiencies through network synergies and cross-selling. If the airlines save money they will pass it on to consumers,” said Kingfisher Airlines Chairman Vijay Mallya.

Both airlines are in the red. Kingfisher Airlines made a loss of over Rs 1,000 crore and Jet Airways Rs 806 crore in 2007-8. The two financially strained companies have also been looking at raising over $1.2 billion (Jet for $800 million and Kingfisher $400 million) to finance expansion plans but have found it difficult to do so, especially after the US financial meltdown.

Jet, for instance, postponed its rights issue and has been looking for strategic investors instead. Mallya recently said he would not mind divesting 26 per cent to foreign airline companies if the government allowed it.

Both airlines, which have a combined workforce of around 19,000 (of which Jet has 12,000), have trimmed staff by over 2,000 in the last few months.

Jet Airways, which bought Air Sahara (renamed JetLite) in 2007, reduced staff strength by 1,200 and followed it up with a voluntary separation scheme for another 750 employees. Kingfisher, which bought Air Deccan in December 2007, reduced its staff by only 350 recently.

The two airlines have had a combined fleet of over 189 aircraft, making it much bigger than state-owned Air India (the entity formed after the merger of Air-India and Indian Airlines) with 149 p lanes. The combine will fly 927 domestic flights and 82 international flights a day.

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