Financial Daily from THE HINDU group of publications
Monday, Jan 30, 2006
Mergers & Acquisitions
Jet-Sahara deal: Smaller players' concerns on turbulence
Tunia Cherian George
Their fears revolved around the merged entity indulging in predatory pricing and unhealthy competition that could stunt the sector's growth. Their apprehensions are understandable. Once it gets all approvals for the $500-million deal buying out Air Sahara, Jet will have more than 50 per cent market share.
Moreover, the combine, with a fleet strength of 79 aircraft, would have the lion's share on routes such as Delhi-Mumbai, which account for nearly 50 per cent of the domestic traffic. Jet would also have control over parking bays and other infrastructure in some airports.
Mr Vijay Mallya, Chairman, Kingfisher Airlines, which was also in the race to buy Sahara, has been emphasising that the Government should take steps to ensure that every airline company has a level playing field.
His contention is that, as early entrants, Jet and Sahara already have prime parking slots, flight schedules, and other facilities at airports.
While he was not against the deal or Jet becoming a major player, Mr Mallya said he was concerned about the lack of a level playing field.
"The government should ensure that no airline has a route-specific monopoly," he said.
M&As no new phenomenon
According to an analyst with a leading broking firm, while the Jet-Sahara combine would have an edge over other private airlines, it should be seen as a free-market phenomenon. Mergers and acquisitions are happening in other sectors too. What is required is a strong regulator, to ensure that no single player enjoys a monopoly on any route. According to the Civil Aviation Minister, Mr Praful Patel, smaller airlines should not worry about Jet Airways gaining a monopoly in Indian skies, as mergers and acquisitions are becoming common.
``Mergers and acquisitions have become common practice these days... they are going to happen but there is no need to fear a monopoly,'' he told reporters, immediately after the announcement of the deal.
He pointed out that every new entrant makes a small start. Indian Airlines, which was at one time the only domestic carrier, with a 100 per cent share in the market, had seen its share decline considerably over a period of time.
``Every airline starts in a small way and tries to expand its operations. We have been liberal in granting licences to private airlines. Already, some have been permitted and the applications of a few others are being considered,'' he said. The government's objective is to provide better service to passengers.
The Monopolies and Restrictive Trade Practices Commission has also reportedly assured that, if required, it will conduct an investigation into the potential impact of the deal.
Good sign for consumers and the industry
According to one analyst, the merger, which is expected to be formally completed in April, cannot be seen as a negative for the consumer. While the merged entity would have some pricing power, not all its customers will be complaining. Not least because Jet would continue to target the business traveller, who would not mind paying a little extra for full-service and flexible flight schedules.
Second, in spite of its dominant position, the merged entity cannot fill up all its seats at premium fares. It would still have to compete with the low-cost carriers by offering discounted fares targeted at the leisure traveller. The merger is also a healthy sign for the players left in the field.
According to him, the room for full-service carriers is not huge. When the merger becomes effective, there will only be three full-service carriers, namely, Jet, Indian and Kingfisher, which would compete with each other for market share.
One thing is sure. The deal will change the contours of the Indian domestic aviation sector. If it does benefit passengers, it deserves to be supported.
It is for the government to ensure fairplay and check against any particular player gaining undue advantage.
The stock market, which welcomed the mega deal in the immediate aftermath, may be a bit disappointed with the substantial (53 per cent) drop in Jet's third-quarter profits announced last Saturday.
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