Recently Kingfisher acquired Deccan Aviation’s majority stake. Both are like Chalk and Cheese, with different operating philosophies and different target segments. What, then, is the rationale behind their merger? Why did this happen after all?
The two airlines have different business models and cater to totally different passenger segments. Air Deccan, after it’s arrival in 2003 has rewrote the Indian aviation industry. With low cost operating model, Air Deccan bought the prices down and thus allowed Indian middle class and business travelers to afford the prices. Result: domestic air travel really took off. However Deccan is still bleeding in terms of revenue.
First and obvious outcome of this merger is the consolidation in the sector. The reason is, weaker players pay more attention to cash generation than profitability and that brings down the financial health of the industry. So, this merger will help industry in consolidation.
Other compelling reason behind the merger is the potential for huge savings from cost synergies, route rationalization and bulk order deals. A close look at the two airlines reveals that except the business model there is no fundamental difference between two airlines. Sharing parking lots, maintenance, flight operations, cabin crew, pilots and ground staff really will save a lot of cost. Besides marketing network created by Deccan can be used by Kingfisher and visa versa.
Also, with this merger Kingfisher will get license to operate international sector. Due to 5 years ban, Indian operators are not allowed to enter international sector for 5 years of their operation. Since Air Deccan is operating since last almost fives years, getting the international license will not be an issue for Kingfisher.
Tough Air Deccan is at the lower end of the spectrum with lost cost service and Kingfisher is operating in service and business sector. But merger is promised to maintain separate identities thus serving entire spectrum of the industry. With international sector getting added up, it will only help in revenue generation. So, merged entity will serve low cost sector, service sector and international sector, thus becoming one preferred carrier for all needs.
Years ago, Mr. Gopinath changed the rules of the Indian aviation industry and rudely woke up the established players with his innovative pricing policies. Following this merger, Indian aviation industry will be consolidated with three players, Indian-Air India, Kingfisher and Jet-Jet Light.
The bottom line is, Mr Mallya’s gambit may result in a win-win situation. And also, good for passengers.
After all we want good service and also want to save money when we fly, isn’t?
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2 comments:
copy pasted things from businesstoday.Try to write your own views;rather than copying from some one else article.
My dear friend, blog is not only writing my own analysis. It might be just picking up some story which I read some where.
That is basic principle of blog.
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