Aviation industry consolidation unfolds $120bn opportunity

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Aviation industry consolidation unfolds $120bn opportunity

Aviation industry consolidation unfolds $120 billion opportunity. Order book worth $120 billion for 1,100 aircrafts and infrastructure awaits global suppliers

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Much like Jet Airways has positioned Jetlite, earstwhile Air Sahara as a value carrier, Kingfisher plans to let Air Deccan remain an LCC, giving it a presence across passenger segments including low-cost, normal fare and premium services.

"Creating a large entity is one thing but making the venture profitable is another proposition altogether. Air France-KLM is one of the most profitable companies in Europe, in sharp contrast with American Airlines, the largest airline in the United States, which had difficulty in managing the merger of Trans World Airlines (TWA) with itself in April 2001." explains Rangar.

The Kingfisher-Air Deccan combine will help them bring operating costs down, lower expenses on spares, ground handling facilities, engineering, staff and crew - turn a saving of up to $73 million in the first year itself.

"As far as Jet Airways and Air Sahara merger is concerned, before even talking about turning a saving they still have to chalk out a time-line for a total integration. Jet should be prepared for considerable short term losses as integration will be complex due to the fact that the two entities are culturally very different even though both are full service carriers."

After the acquisition, Jet Airways' renaming Air Sahara as Jetlite and positioning it as a value carrier, industry estimates suggest that Jetlite would need up to $200 million over the next two years to turnaround and absorb projected losses.

India's civil aviation industry has achieved the biggest ever growth in aircraft movement and passenger traffic in the last couple of years. Passenger traffic in the domestic airports increased by 22.3% to 59.54 million, while aircraft movement increased by 14.2% to 730,000.

There is a vast untapped potential in the form of the aspiring middle class which is also growing in affluence. We will most likely see the so-called no frills airlines turn a new leaf and the value proposition that they bring to the passenger will determine their success.

Sourced From: IndusView Advisors Private Limited