India's Top Two Airlines Form Alliance To Cut Costs

October 14, 2008

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India's top two private-sector airlines, Jet Airways and Kingfisher Airlines, said they had set up an alliance to cut costs through code-sharing and combining ticketing and ground services.

There would be no mutual equity investment between the two airlines, which have a combined fleet size of 189 aircraft and a domestic market share of about 60 percent. Kingfisher has just started an international flight, while Jet has been running overseas operations for several years.

The agreement also covers joint fuel management, crew training and utilization and offers customers access to each other's frequent flier programs, they said in a statement.

"There will be huge cost savings and revenue enhancement opportunities arising from this alliance," Jet Airways chairman Naresh Goyal said.

Both airlines are mired in losses with Jet expecting to break even only by March 2010. Falling share markets have delayed their plans for capital raisings.

Jet and Kingfisher had bought rivals in 2007 as they fought for top position in a booming domestic market. Jet bought smaller Sahara Airlines and Kingfisher acquired India's first low-cost carrier Deccan Aviation.

But higher ticket rates due to fuel prices coupled with a slowing economy have hurt demand, forcing airlines to trim costs, exit loss-making routes and raise funds to stay afloat.

Domestic air travel grew an annual 2.3 percent between April and August compared to 38 percent a year earlier, government data showed.

Jet Airways plans to discontinue some international flights and put its overseas expansion on hold. Kingfisher, run by liquor baron Vijay Mallya, in August deferred delivery of 32 A320 aircraft, citing waning air travel demand.

"Both Jet and Kingfisher fully realize that better understanding of supply and demand in this capital and labor-intensive industry is the key to profitability," said Mallya, who has also has financial interests in real estate, Formula 1 motor racing and small aircraft manufacturing.

(Reuters)