1. Jet Airways and Air Sahara
Kingfisher Airlines and Air Deccan

2.  Reducing the over-capacity existing in the
market
 Stabilizing prices,
 Increasing yields and
 Bringing down costs.
 The era of cheap fares might also come to an
end.

4. Jet Airways
 Owned by London based Billionaire Naresh Goyal
 Started commercial airlines operations in 1993
 Second largest airline after Air India
 Fleet consists of 92 aircrafts(as on June 2010)
Air Sahara
 It was a part of 'Sahara India Pariwar' business
conglomerate.
 Began operations in December 1993
 Was rebranded as Air Sahara in 2000; earlier known
as Sahara airlines
 In 2004 it became an international carrier with the
start of flights from Chennai to Colombo.

5.  In Jan 2006 Jet announced to buy Air Sahara for US
$500 million( Rs 2300 crore).
 But deal fell apart in June after Jet failed to get the
necessary regulatory approval.
 Both companies file suit against each other
 Jet filed a petition in the court stating that Air
Sahara had not fulfilled conditions agreed upon -
transfer of infrastructure facilities like parking
bays, arrival and departure slots.
 Air Sahara filed a petition for blocking Jet Airways
from withdrawing money deposited in the escrow
account created for the merger
 Escrow account gets sealed.
 Finally – no deal

6.  In April 2007 a second attempt made
 Deal was closed in at $14.4 billion (Rs 1450
crores) including Rs 500 crore that had
already been paid.(only equity component)
 Jet Airways was to transfer Rs 400 crore to Air
Sahara immediately.The balance of Rs 550
crore is payable in four interest free annual
equal instalments
 Air Sahara renamed JetLite

7.  The deal included only the transfer of
assets, the liabilities of Air Sahara were not
transferred.
 The deal gives Jet with access to more
international destinations and greater
infrastructure including more parking bays
and hangers at domestic airports. Domestic
market share of 32%.
 The deal also helps the Sahara Group exit the
airline business and concentrate on its other
businesses-financial services, publishing and
real estate.

10.  JetLite will have a simple business plan and business
model
 Catering to price sensitive travellers and first time flyers
 This segment of the market is experiencing exceptional
growth and is estimated to grow at +25% pa.
 The significant advantage JetLite will enjoy vis a vis
competitors in this segment will be
◦ the ability to leverage the lower costs of services through group
consolidation, group purchasing and better utilization of existing
infrastructure including manpower productivity.
◦ Higher level of frills than existing no frills carriers
◦ Higher level of reliability from the customer’s point of view on
account of Jet Airways’strong network

13.  Air Deccan airlines merged with Kingfisher Airlines and decided to operate as a
single entity from April, 2008. It would be known by a different name-Kingfisher
Aviation.
 The merger is based on recommendations of Accenture, the global consulting
firm.
 KPMG was asked to do the valuation and the swap ratio was decided accordingly.
 The merger came through on as Vijay Mallya from Kingfisher airlines bought 26%
of the stake in Air Deccan.
 The unification of the two carriers had to be sanctioned not only by the two
panels, but also by the institutional investors, independent directors, and other
shareholders.
 After the merger, the company has a combined fleet of 71 aircrafts, connects 70
destinations and operates 537 flights in a day.
 The combined entity has a market share of 33%.

14.  The charter service of the respective airlines would be hived off and operate as a separate
entity.
 Post merger, KingFisher would operate as a single largest (private) airline in the sub-continent.
 Operational synergies
◦ engineering,
◦ inventory management and
◦ ground handling services,
◦ maintenance and overhaul
 The management and staff of both the airlines would be integrated.
 Spend less on training and employees.
 Costs would also reduce which is associated with maintenance of aircraft.
 The savings in cost would be lower by about 4-5% (Rs 300 crores) (Business Standard, June
3, 2007, p- 4)
 Devising a more optimal routing strategy it could help in rationalizing the fares.

15.  Kingfisher will focus more on the international routes while Air
Deccan will give it a wider domestic reach
 Air Deccan plans to continue as a low cost carrier while
Kingfisher will function as a full-service carrier
 The Airbus aircraft serve metro routes while ATR are utilized for
Tier II and III cites and also for small airports
 Company plans to revisit their fleet plan in coordination with
each other to rationalize the fleet structure
 The company has already placed orders from the European
aircraft major, Airbus Industries for about 90 aircrafts.
◦ These include five of the largest aircraft-A380, the first of which is slated
to be delivered to Kingfisher by 2011.

17.  Concentration as shown by the Herfindahl-Hirschman Index (HHI) is increasing on
relevant markets, post merger.
◦ HHI, is a measure of the size of firms in relation to the industry and an indicator of the
amount of competition among them
 In terms of slots, post merger, Jet and Kingfisher are controlling a major share.
 Indian is losing out to these two players.
 Large number of airlines flying on selected routes.
 Control of major slots, especially in the peak period , by Jet and Kingfisher.
 Consumer therefore has limited choice in the peak period.
 High degree of price parallelism –especially between Jet and Kingfisher –may lead
to price collusion given the dominance of these two airlines on selected routes.
May also lead to overpricing.

18.  Foreign Travel
 Promotion by other players
 Entry of New Players
 Aircraft Purchase by Airlines
 Infrastructure Constraints and Airport development
 Non-metro airports
 Government Policy
 Open Sky Policy and liberalized set up
 Foreign Direct Investment
 Technical Issues
 Cargo Hub
 Lack of MRO Facilities
 Shortage of skilled personnel
 Peak Hour Airport Fees

19.  Limited Air Infrastructure
◦ Modernisation of airports
◦ Creation of secondary airports
◦ Seamless ATC (air traffic control) system
 Cost Structure of an Airline
◦ Sensitive about the cost of aviation turbine fuel (ATF)
◦ Air travel is expected to become more costly as per the
directions given by the civil aviation ministry
 Innovation
 Financing
 MRO Facilities
◦ Maintenance, repair and overhaul facilities lacking in
India