The inevitable has happened sooner than expected. After attracting new players catering to new routes with cheap prices, the Indian aviation sector is set for a shakeout. Just as telecom industry, India would soon have 5-6 airline companies operating on all-India routes, having deep pockets and stable pricing strategies to make airline business financially viable. After Air India-Indian, Jet Airways-Sahara and Kingfisher-Air Deccan, another merger is on the anvil. As per Business Standard, Madurai-based Paramount Airways is interested in acquiring the Mumbai-based Wadia’s GoAir.
This merger, if it materializes, between the two entities will be one of necessity, driven by market dynamics, rather than their own personal choice. With the newly created 3 merged entities garnering close to 85-90% market share turning the industry into an oligopoly, the focus is now on survival and efficiency of the smaller players. The coming days could also see Spice Jet and IndiGo forging a new alliance or joining an existing player, just as what happened during the BATATA (Birla, AT&T and Tata) alliance in telecom.
Paramount Airways and GoAir present a good case for merger as they both derive synergies in costs and operations. The former operates only in south India and positioned as a high value, business class carrier with five 60-90 seats Brazil’s Embraer aircraft. On the other hand, GoAir is a Low Cost Carrier with 4 Airbus A320 operating 61 daily flights. Since there business models and operational routes are different, they can together cater to a wider spectrum of customers in different markets.
Paramount want to expand in West India while GoAir is expanding its fleet base and the merger could then help in reducing the costs for both the airlines. Another positive is the infrastructure these companies can share which includes the slots, parking bays, ground handling services, security, pilots and eventually improved profitability. Another area which can be beneficial to the merged entity is in the maintenance, repair and overhaul facility.
The aviation sector is expected to grow by 20-25% in the next 5 years and for this India will need over 850 additional aircraft over the next 20 years requiring $72 billion investment. In such a scenario, only financially-viable large players would survive, which would bring stability in prices and operations in the long run.
However, consolidation should also be supported by improvement in the aviation infrastructure, navigation aids, safety standards and better facilities at airports, to bring them at par with the international counterparts. As it is said that airport is the first impression one gets of the city or a country and usually ‘First Impression is the Last Impression’.
Find this article at: http://www.labnol.org/india/corporate/aviation-set-to-follow-telecom-route-consolidation-check-in-with-swift-pace/255/
Tags: aviation, deccan, goair, indigo, infrastructure, jet, kingfisher, merger, paramount, takeover, telecom, Corporate, India
