More consolidation has come to the Indian market with the parent of Kingfisher Airlines buying the biggest single stake in rival Air Deccan.
UB Group agreed in early June to acquire 26% of Air Deccan for Rp5.5 billion ($136 million) by buying newly-issued shares. Under Indian stock exchange rules UB now has to make an open market offer to acquire at least 20% more.
Air Deccan, India's largest low-cost carrier, has been running short of cash and had been seeking an investment partner to provide more funds to help it continue with its ambitious expansion programme, which includes adding dozens of new Airbus A320-family and ATR turboprop aircraft. The marriage is an unlikely one, as Kingfisher is a full-service carrier while Air Deccan is a strict no-frills operator. Kingfisher and UB Group chairman Vijay Mallya has said many times that he believes no-frills carriers cannot be successful in India. Air Deccan initially rejected his advances, with chief executive Capt G R Gopinath saying at one point that Mallya "is from Venus, I am from Mars".
Gopinath, one of Air Deccan's founders, says the deal was agreed only after he was satisfied that Mallya would not take full control. But how long Air Deccan will be able to remain independent is an open question, as UB Group has only said it will maintain separate operations for Air Deccan and Kingfisher for "the near future".
Mallya also told Airline Business at the IATA annual general meeting in Vancouver that he expects to secure majority ownership of Air Deccan through the public offer he will soon be making. "I will probably end up with more than 50%," Mallya says, as he will be offering "a good premium" to shareholders.
He is not ruling out a full merger at some point, saying: "That is something I have to figure out. We are looking at several different models. Today we are India's largest airline combined with 33% market share. We have 537 daily flights to 69 destinations. Right away there will be synergies. We are going to integrate the back-end office stuff first."
The group fleet will comprise 41 Airbus narrowbodies and 30 ATR turboprops, with dozens of the same aircraft types on order by both carriers. Kingfisher also has widebodies on order for planned international services.
UB Group is now closer to its long-stated goal of taking on Jet Airways and making Kingfisher the largest privately owned airline group in India. Jet is not to be ignored, however, as it recently acquired Air Sahara and has been rapidly expanding its domestic and international networks. More intense competition will also come from state-owned Air India, which is merging with Indian Airlines.
The Kingfisher-Air Deccan tie-up may put more pressure on smaller low-cost airlines, such as Go Air, SpiceJet and Indigo, and they may be forced to look for their own tie-ups. But it could be positive for them, as Mallya says Air Deccan, which has been aggressive in its pricing, will be increasing fares to more "rational levels". He adds: "The important thing is that it is not going to operate at a loss any more."
Source: Airline Business
