At the domestic front there is an unprecedented growth in capacity increase due 5 new airlines commencing ops in past 19 months in India. All of these have been low cost carriers except Kingfisher. In order to have a bigger share of the pie, the price induced demand has resulted in fall of benchmark fares. However, favorable situation for consumers.
Introduction of IPOs for raising funds for the expansion plans of the legacy and LCC in India.
While the airline industry continues to grow, particularly in Asia, competition and resulting yields along with fuel prices continue to put immense pressure on profitability across the world. Fuel price fluctuations have significantly impacted profitability of carriers over the course of 2006. High prices in the early part of the year led to increase in fares and reduction of margins, whereas reducing prices have improved the situation marginally.
The race for survival is likely to push the trend of airline mergers across the world in order to reduce competition and rationalize yields to viable levels. Initial sign of consolidation is already visible with initial talks of the UA and CO merger. In the domestic scenario IA and IC merger will change the business dynamics. This may be good from the aviation industry perspective to usher in consolidation leading to greater stabilization however, customer will be affected. From simple economics point of view, more airlines, lesser fares. Fewer airlines, less competition, more fares.
Increased capital inflow in the aviation industry has raised hopes of further stabilization and growth. Example, consortium know as Airline Partners Australia comprising Macquarie Bank, Australian-listed Allco Finance Group Ltd and related Allco Equity Partners, US buyout firm Texas Pacific and Canadian investment firm Onex Corp, is investing 4.4 USD in Qantas. In a similar incidence, Travel-reservation Company Sabre Holdings Texas Pacific Group and Silver Lake Partners will invest $ 5 billion; this transaction would put the three largest travel reservation companies in the hands of private equity firms. Blackstone Group owns Travelport, which runs the Galileo reservation system, which it plans to merge with Worldspan, a third reservation company that is also privately held. Such activities have triggered extended business cycle with mergers and acquisition affecting the normal day to day activities.
Private participation in airports: The takeover of BAA by Spanish transport group Ferrovial has heralded a new era and is likely to lead to the increased move towards formation of large airport management conglomerates. Similar trend is seen at domestic Indian front with privatisation of major metro airports for infrastructure development.
Liberalisation of bilateral has gained significance with changing patterns of countries negotiating to regions negotiating for common bilaterals example EU on behalf of all countries with India.
With increase in the direct operations between India and US there may be reduction in traffic flow to third country hubs like Dubai. 2006 observed kick off of this trend with Delta starting direct operations between JFK and BOM.
Whereas, initial signs of consolidations were seen in 2006, but the real impact of stabilization will be felt only by 2007.
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4 comments:
Merger may be good for the aviation industry, but the contention that "fewer airlines, less competition and more fares" may not always be true..A merger can streamline an entire operation. In all probability the seat cost per mile may drop which in effect may be instrumental in lowering the price, even though the seats offered are few.
But yes, mergers may not be a favourably topic with the employees as the fear of layoffs hangs like the sword of Damocles over them.
In the current market scenario, consolidation becomes very important for airlines in India. However, any kind of consolidation does not seem likely in the immediate future, especially with the momentum of investments intact. The impact of the AI-IC merger may not set in, in the short term given the complex dynamics and scale of the two entities.
I guess the merger is the word of the day as without this the stabilisation is not possible
Merger, demerger or consolidation doesnt matter. The Airline industry should first figure out a way to maneuver in dense fog of Delhi and learn to run the flights on time. This should be the first and the foremost concern for the aviation industry before anything else.
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