Summary
Goodbye Low Fares?
The consolidation in the Indian airspace will put an end to predatory pricing.See the full content of this document
Extract
Business News
Kushan Mitra
The Indian aviation sector has certainly hotted up over the past three months. Jet Airways finally took over Air Sahara, bringing to close a tumultuous year-long saga; the government finally gave the green light to the merger of the two national carriers, Air India and Indian, bringing to close an even longer saga. But the most remarkable "Will he? Won't he?" episode--that included name-calling and cake-cutting--was when Vijay Mallya's UB Holdings paid Rs 550 crore for a 26 per cent stake in the financially-troubled Air Deccan, effectively taking control. Now, these three large groupings control around 90 per cent of domestic air travel and all of Indian flag carrier international routes.The effective takeover of Air Deccan by Kingfisher was one of four proposals placed before the Air Deccan board, according to Venkat Ramaswamy, Executive Director, Edelweiss Capital, who advised Air Deccan on the deal. "The board felt that this was the best deal for the airline." Why? This was the only deal that allowed Air Deccan's founders, including its CMD G.R. Gopinath, to retain a say in the airline which pioneered low-cost air travel in India.But great news for Gopinath and company may turn out to be bad news for air travellers. Mallya has said that Air Deccan will look closely at its fare structure to ensure that its bottom line stops leaking the gallons of red ink that it is doing now. This means there will be no Re 1 and Rs 99 tickets that Air Deccan routinely issues by the thousands every week. This forced other carriers to follow suit. In May, for instance, SpiceJet offered lakhs of tickets at 99 paise each. Then, the Wadia-promoted GoAir is offering tickets at Rs 525 on the Mumbai-Delhi route; and tickets on the Mumbai- Ahmedabad route are available for less then Rs 100. Such prices are obviously suicidal and no airline can hope to make money with such...See the full content of this document
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