Thursday, November 15, 2018

With eye on Jet Airways, could Tata be biting more than it can chew?

The Tata group is close to buying a controlling stake in Jet Airways, say news reports. If a deal fructifies, it will be a lifeline of sorts for Jet Airways promoter Naresh Goyal. Employees of the beleaguered airline can now hope for a regular salary cheque by the end of the month. However, as far as the shareholders are concerned, the company has merely survived another crisis.

The price conscious Indian airline space has been a graveyard for many promoters. Low-cost airlines compete in the same space as full-service airlines, which has resulted in severe damage to the latter. Kingfisher Airlines, Air India, Jet Airways and Tata’s partly owned Vistara have all been badly hit by the price competition.

The competition is so high that any increase in oil prices cannot be passed on to consumers; airlines end up absorbing the hike and increasing their losses. In the present scenario, even highly cost-efficient airlines such as Indigo and SpiceJet are facing losses.
That’s the lens to view Tata’s acquisition of Jet Airways. No doubt that the Tata group will increase its market share in the airline space. The group presently owns 51 percent in Vistara and 49 percent in low-cost carrier AirAsia India. If the deal goes through and Jet Airways comes under the Tata banner, the group would then have a combined market share of around 23.6 percent.

What is interesting in the acquisition is that there will be intense competition within the Tata group itself with three different airlines vying for attention and capital. A certain amount of cannibalisation cannot be ruled out. One will have to wait and see which airline will be sacrificing its share for Jet Airways or if it will be the other way around.

To add to the complexity, AirAsia is a low-cost airline with a DNA of aggressive pricing. AirAsia recently announced a new promotional offer of Rs 399 for domestic flights and Rs 1,999 for international ones. Such pricing will cannibalize Jet Airway’s market share along with others.
14/11/18 Shishir Asthana/moneycontrol