No-frills airlines flying towards consolidation

Mumbai/Bangalore: Is the low cost carrier (LCC) space in aviation sector flying towards consolidation? If the rumblings from the aviation industry are anything to go by, the wind seems to be blowing in that direction.
Talks of no-frills airline SpiceJet Ltd eyeing stakes in rivals IndiGo and GoAir have already begun doing the rounds in the industry. And Kapil Kaul, the chief executive officer (India and Middle East) at Centre for Asia Pacific Aviation (CAPA), believes the noises just might be true. "At present, it is too early to say whether there would be consolidation between SpiceJet, IndiGo or GoAir but it could take shape in the next 6-9 months," he said.
The CAPA chief said any merger and acquisition (M&A) moves would be driven by investors and not by the management. "We will see strategic investors like Wilbur Ross, who will not be guided by emotions, trying to the leverage opportunity by buying out assets with depressed valuation," he said.
Last year, Ross picked up stake in SpiceJet by investing $80 million. Industry experts say he wants to push up the valuation of SpiceJet to get a better return on capital. For this, he is taking the inorganic route.
Kaul expects airlines to fly into stormy weather in the coming few quarters and that could spur consolidation activity in the LCC space. "The first month (April) of the first quarter of this fiscal does not look very good. April and May are also prospectively bad. The second and the third quarters will also be bad. It is during this time that consolidation in the LCC space will take place," he said.
21/04/09 Archana Shukla & Praveena Sharma/Daliy News & Analysis

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Categories: Indian Aviation- In General Apr 2009, Low Cost General Apr 2009