BUSINESS
Consolidation will also lessen longer-term structural challenges for the sector
Tata Sons has acknowledged its interest in Jet Airways, confirming persistent speculation about such a move but also said that no proposal has been made so far. However, aviation experts have begun talking about the benefits of market consolidation if the deal fructifies in the near future. Remember, Jet has been facing several headwinds such as failure to honour some of its payment commitments, consistently losing market share, delaying employee salaries amid rising debt and promoter Naresh Goyal's reluctance to lose control of the airline he founded.
India is one of the fastest growing aviation markets in the world but the industry is also quite fragmented. The biggest airline by passengers, IndiGo, holds sway over more than 40% of the market and the remaining about 60% of passengers are divided unequally between six more players. Then, there are low-cost airlines and those which offer the full-service experience. There is a fierce competition for every single passenger among all the seven airlines, which means there is little difference in pricing between the full-service carriers (FSCs) and the low-cost carriers (LCCs). As a result, the market as a whole lacks pricing power, thus driving down fares constantly. All this hyper competition is happening given that the cost structure of the Indian market has been one of the highest for airlines in the world. India taxes jet fuel heavily and with prices of Brent crude shooting up all through this fiscal along with the rupee witnessing wild fluctuations, airlines' finances are in a mess.
This is the scenario - high costs, little pricing power and too many airlines - in which a possible consolidation through the Tatas' acquisition of Jet is being talked of. If we leave the mechanics of this deal aside for a moment, this is possibly the best news for India's bleeding aviation market in a long time. Aviation experts for long have been talking of space for just 3-4 strong airlines and consolidation being the need of the hour.
So this proposal for Jet will help all the remaining players. Why market consolidation is important can also be gauged from these numbers: According to brokerage Edelweiss, passenger growth has been largely one-sided with growth at Indigo, Jet Airways and SpiceJet in the September quarter at 30%, 3.3% and 4% year-on-year, respectively, versus industry growth of 19%. So, not only does one airline already holds a disproportionately large share of the market, but it is also cornering a huge share of the incremental passengers flying within the country.
Global aviation consultancy CAPA said that "current discussions around consolidation in Indian aviation…if executed, would be positive for the industry. Our long-held position is market cannot sustain three FSCs. May trigger further moves."
CAPA had warned earlier about clear headwinds from higher costs and lower yields this fiscal. It had also said that with the exception of IndiGo, none of the airlines "have the balance sheets to comfortably withstand the damaging combination of higher unit costs and lower yields. FSCs are feeling the pressure most acutely. LCCs are somewhat less vulnerable due to cash generated from their relatively higher volumes of advance sales, and from the incentives on sale-and-leaseback transactions."
Not only is consolidation good for the aviation industry as a whole, but it will also lessen longer-term structural challenges for the sector. Specific to Jet Airways, the airline is in a precarious position with an urgent cash requirement and the Tatas' deal may be its best chance of survival.
Jet is an FSC (competing with Air India and Vistara) and FSCs could together lose $1.75-2 billion this fiscal. FSCs have a high-cost structure compared to LCCs and an uncompetitive cost base with yields remaining under intense pressure for many successive quarters means the need for consolidation is even urgent than for the LCCs.
Any buyout of Jet has some benefits for the Tatas too. The Tatas already have a 51% controlling stake in Vistara and AirAsia India but these airlines together account for just about 8% of the domestic market. Vistara has ambitions of flying overseas but needs a larger fleet to begin operations and operate in the FSC space while AirAsia India is an LCC – this means no synergies are possible between the two Tata airlines. Purchase of Jet allows Tata's heft (if combined with Vistara, they gain 20% market share), gives them access to sizeable international presence and bring economies of scale on the whole. There are reasons why such an acquisition may not work out well too but from the point of view of the viability of the market at least, the deal would be a win-win.
$1.75bn – full-service carriers
30% – IndiGo’s passenger growth in September quarter
4% – SpiceJet’s passenger growth
IND vs AUS: Rishabh Pant joins Virat Kohli, Rohit Sharma in elite WTC list, becomes 3rd Indian to...
'All scripted drama...': Puneet Superstar allegedly assaulted by influencers in viral video, watch
Actress Ana de Armas caught kissing Cuban President Miguel Díaz-Canel’s son in viral photos
Oreshnik's Shadow: Will Russia's hypersonic missile force west to back down?
‘You’re So Beautiful’: World’s tallest woman meets world’s shortest woman over tea, pics go viral
Delhi-NCR Air Pollution: Consequences of GRAP-4 are drastic, may have adverse effects, says SC
Delhi-NCR Air Pollution: Schools likely to stay closed till..., check city-wise update
Maharashtra: 3 killed, 9 hospitalised after gas leak at fertiliser plant in Sangli
THIS farm is selling a cup of coffee for Rs 28000, but there's a twist, it is...
Chhattisgarh: 10 Maoists killed after encounter with security personnel in Sukma
Mukesh Ambani's SUPERHIT plan for Jio users, offers unlimited 5G access for 1 year for just Rs...
IND vs AUS 1st Test: KL Rahul's dismissal sparks DRS controversy in Perth Test
Dense fog, heavy rain predicted in these states till November 25; check here
Oreshnik Hypersonic Missile: Which nations are within its range?
Bihar teacher, principal reach school in drunken state; know what happened next
'I have faced a lot of...': Arjun Kapoor REVEALS his biggest fear amid break up with Malaika Arora
How millions of Indians may get affected due to US indictment of Gautam Adani in bribery case
Amid divorce rumours with Aishwarya Rai, Abhishek Bachchan says 'missing someone is okay but...'
After Bibles, watches and sneakers, Donald Trump is now selling autographed guitars, price is...
Delhi pollution: Air quality improves to ‘very poor’ category, AQI at...
Vladimir Putin's BIG threat, warns he could strike UK with new ballistic missile if...
Shillong Teer Results TODAY November 22, 2024 Live Updates: Check winning numbers here
Somebody misbehaved with Alia Bhatt on Highway sets then Imtiaz Ali had to...
Zomato CEO Deepinder Goyal reveals twist behind Rs 200000 job fee, closes application window
Days after Ratan Tata's demise, Tata Group's Rs 131000 crore company inks pact with ADB for...
WATCH: Woman makes Biryani with Parle-G biscuits, viral video fumes internet
Only train in India in which passengers can travel for FREE; check route, timings and more
'Justice for biryani': Parle-G biryani takes internet by storm, video goes viral
DNA TV Show: Why Gautam Adani charged with bribery and fraud in US
IND vs AUS: Records Virat Kohli can break during Border-Gavaskar Trophy
Diljit Dosanjh fans get angry over Ananya Panday's birthday post for her grandmother, here's why
Reddit suffers outage with ‘upstream connect error’ message, says 'currently investigating...'
Border-Gavaskar Trophy: How has Jasprit Bumrah fared in Tests in Australia?
Delhi records coldest night of the season, temp drops to...
Crossing the Line: Ukraine's Use of Storm Shadow Missiles and the Escalation of Conflict
When Malaika Arora talked about the controversial ‘instant pleasure’ ad, it was for…
This is the world’s most expensive shopping street, not Fifth Avenue, New Bond Street, it is...
Big setback for Gautam Adani, Kenya cancels Rs 6216 crore deal with Adani Group due to...
Viral video: Man’s jugaad to stay warm in winter will leave you SHOCKED, watch here
Hinduja Group firm gets key approval for acquisition of Anil Ambani's debt-ridden Reliance Capital
Viral video: Middle-Class man lives dream of having tea at Taj Hotel, netizens applauds
Shloka Mehta looks stunning in white floral kurta as she clicked with Akash Ambani, it costs Rs....
Who is Sagar Adani, Gautam Adani's nephew, accused of bribery, fraud charges in US?
PayPal down: Several users face issue while logging into accounts, say 'no one could...'
IND vs AUS: Jasprit Bumrah, Pat Cummins eye historic captaincy milestone in Perth Test
BGT 2024, Ind vs Aus: Can Shubhman Gill be the new Cheteshwar Pujara? Is he really ready?