Air India-Indian and Jet- Sahara, the big boys of Indian aviation, have consolidated. CNBC-TV18 reports on whether it is time for the small airways to fly the same route, especially, since they all need financial bailing out.

Can SpiceJet bail Air Deccan out? The idea of creating a giant low-cost airline with a 26% market share has caught the fancy of dealmakers. Many believe that together they could cut losses by rationalising routes and infrastructure.

For example - 90% of SpiceJet's flights fly the same routes as Air Deccan. This duplication is not required, specially since both airlines are losing money on key metro routes. Instead, if they come together, they could re-deploy planes to smaller towns, which make for more profitable routes. Plus, they could economise on airport infrastucture and manpower. Consolidation could also, more importantly, bring back pricing power.

Ajay Singh, Director, SpiceJet, said, “Over the last two years, there has been fantastic growth, but it has been profitless growth. Some new entrants have come in and priced very aggressively, sometimes below cost. So, any consolidation will help improve yields.”

But there is a hitch. Spice and Deccan use different aircrafts. Deccan operates Airbus and ATR craft, while Spice flies Boeings. That means three separate maintenance facilities, separate inventories and separate sets of pilots and engineers. The increased costs take away all the advantage of a bigger market share and more pricing power.

The same question arises between Deccan and Indigo. They fly the same type of aircraft, but Indigo is a very small operation yet and flies the same routes as Deccan. In fact, Indigo could make for a better fit with the Wadia airline Go Airways. Go is more focused on west and south India and Indigo mostly services destinations in north and east India.

Kapil Kaul, CEO, CAPA, said, “When the two merge, most important is whether there is a cost reduction in tackling the market. Is there an yield improvement? Do you see revenue diversification? Is there going to be a broader footprint to enhance each other's network? Are you getting access to a new market?" He adds that there are also issues of manpower, infrastructure and capacity rationalisation.

But even together, Indigo and Go won't make a big dent in marketshare - just about 3%. Many believe that in the current situation, the only consolidation that would make sense is the merger of a full service carrier with a low cost one. For example the coming together of  Kingfisher and Deccan. That would allow Kingfisher to fish for premium and international traffic and let Deccan service budget conscious domestic passengers. Similiarly, a Jet and SpiceJet combination may work just as well. 

But any consolidation will work only if there are strong financiers backing these deals. In the current market situation, where all airlines are in the red and sinking deeper, consolidation without the infusion of serious monies will only result in bigger blacker holes in balance sheets. So, maybe now, its becoming a fight for investors rather than passengers.