New aviation strategies are taking shape

Three years ago, when UB’s Vijay Mallya was drawing up ambitious plans for his new premium airline, Kingfisher, he was sure that the low-cost aviation business would never work in India. But Mallya’s decision to acquire a 26% stake in Air Deccan, the country’s no-frills-flying pioneer and second largest airline, speaks a lot about how market economics can force a business baron to change stance.
According to various estimates, the Kingfisher-Air Deccan combine will have about 75 aircraft in its fleet, a fourth of the total aircraft flown by the country’s domestic airlines. Both the carriers service about 95 destinations, over 90% of the total cities linked by air in India. Both will operate about 500 services a day, about a fourth of the total services undertaken by Indian domestic carriers. Flying together and in formation have their advantages. Dual-price strategies can be very potent in a high fixed-cost industry that sells a ‘perishable’ product, as an airline seat is. And with greater consolidation in the skies (let’s not forget Jet-Sahara), this deal could mark the beginning of weaker airlines going belly up.
This deal will have a big impact on the aviation industry in determining future trends in airfares. Jet Airways may have wanted similar advantages through its purchase of Air Sahara, but that was on paper. Unlike the latter, Air Deccan is actually a low-cost airline, accounting for over 75% of India’s low-cost fliers. Over time, Mallya may decide to cede a large portion of the domestic routes to Air Deccan, while Kingfisher—government willing—fulfils its dream of flying overseas.
02/05/07 Financial Express

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Categories: Air Deccan Jun 2007, General Aviation Jun 2007, Kingfisher Jun 2007