Mumbai, April 10: Jet Airways may be looking to buy Air Sahara for a lot less than it was ready to pay back in January 2006 but opinion is divided today on whether the deal remains as beneficial as when it was first conceived.
The aye-sayers say the deal will benefit Jet Airways in the long run; but a growing bunch of detractors say Air Sahara has shrunk in the past 15 months and is a mere shadow of what it was with its operations largely confined to India.
The acquisition comes at a time when not only low-cost carriers, but other rivals like Kingfisher Airlines have also entrenched themselves in the Indian aviation scene.
Given the intense competition and high fuel costs, which continue to account for a significant portion of an airline’s cost structure, Jet Airways has been focusing on growing its international operations over the past few months.
A research report from CLSA says Jet Airways has grown since 2004-05 when it had no international operations. In the nine months ended December 2006, Jet Airways’ international revenues of Rs 980 crore accounted for 19 per cent of its overall revenues.
The brokerage said over the last one year, Jet Airways has effectively competed in three of the most popular and competitive international routes that include Bombay-Singapore, Bombay-London and Delhi-London.
Its performance improved primarily due to better yield. By 2008-09, international operations are expected to account for 40 per cent of Jet’s revenues.
Air Sahara also flies to certain international locations. These include Singapore, Sri Lanka and Nepal. However, the airline is largely focused on domestic operations. It’s here where the analysts differ. “The acquisition of Air Sahara, even at a lower price, will not bring any significant benefit to the table. Jet will get the benefits of parking bays at airports, trained employees and a few other facilities, but it will have to contend with duplication of routes,” said an analyst who did not wish to be identified.
The analyst added that since last year, both airlines have seen their market shares drop. The market share of Jet Airways is now put at over 25 per cent, while it stands at around 8 per cent in the case of Air Sahara.
However, Surbhi Chawla, analyst at Angel Broking, does not agree with this view. Chawla feels that the acquisition will benefit Jet Airways in the long term.
“The acquisition will give way to good synergies. Both these airlines fly to international routes and they also have a similar fleet. It could bring about cost reduction, higher load factor and better yield as the airlines could look at route rationalisation. They could use the fleet to cover locations which are not served now,” she added. Chawla feels that the pay-back period for Jet Airways from this acquisition will be around two years.
When Jet Airways first announced that it would be acquiring Air Sahara for Rs 2,200 crore, the move sparked consternation among other airlines as they feared that Naresh Goyal would gain access to parking bays and other benefits.
However, some of that apprehension has now dissipated. A senior official with one of the airlines who did not wish to be identified said the acquisition would not affect them much as Air Sahara’s market share had been declining. He added that the only benefits that would accrue to Jet Airways would be a few international routes and other facilities.