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Jet Airways has followed up a $500m takeover of Air Sahara with a tie-up with low-cost carrier Air Deccan, rounding off a burst of strategic manoeuvring that has seen India's leading domestic carrier eliminate a competitor, neutralise another and gain a budget airline as an ally.
Investors remain unimpressed, though. Jet said earnings fell 53 per cent in the third quarter to December.
The share price, already weakening on investors' fears about the impact of high fuel prices and low-cost fliers' continuing gains of market share from Jet, closed 3 per cent lower on January 24.
And India's leading business airline has now lost 13 per cent of its market capitalisation since it announced earlier its absorption of loss-making Air Sahara.
The takeover of Air Sahara and the partnership with Air Deccan -- masterminded by Jet chairman and founder Naresh Goyal to arrest a sharp fall in market share -- have angered rivals.
They have clubbed together to demand a government inquiry into Jet's stranglehold on an industry that is this year expected to at least match the 25 per cent growth achieved in 2005.
Low-cost and other carriers led by Kingfisher, which pulled out of a bid to acquire Sahara, want a fairer distribution by the government of airport infrastructure, and an inquiry into Jet's now dominant position. Jet holds a 50 per cent share of overnight parking bays at Mumbai airport as well as a half share of traffic on the Mumbai-Delhi route following the Air Sahara deal.
"If the growth of Kingfisher or others is restricted, there is a case for a government review. The government must ensure that there is no route monopoly and there must be equal opportunity in infrastructure," says Vijay Mallya, founder of Kingfisher.
Praful Patel, aviation minister, has played down any fear of monopolies, saying take overs are here to stay.
In an interview with the FT, Mr Goyal rejected the accusations of monopoly control, saying they were "designed to confuse"
He says Jet had simply accumulated slots vacated by airlines that had ceased to trade in the late 1990s.
"My focus now is to continue as India's dominant airline for business travellers and also offer cheaper fares," he says.
Analysts describe Mr Goyal's double move as a defensive strategy after a disappointing 18 months. Jet was also forced to cut its fleet capacity by 22 per cent last year after rivals poached its pilots, and suffered from high fuel costs.
This all fed into the slump in net profit for the quarter to December.
If the Sahara takeover was pre-emptive, the impact on Kingfisher was to neutralise a potentially deadlier rival. A Kingfisher-Sahara combination would have had a 17 per cent market share and possessed Sahara's overseas flying rights, eliminating a five-year qualifying period demand by Indian regulators, and posing a threat to Jet's recently launched services to London.
Mr Goyal is confident that he can turn the corner.
Jet has hired pilots from Europe, and will take on 1,000 technical staff out of Sahara's 4,000-odd employees. He believes he can cut costs and reach a new class of budget traveller through the airport-services and inter-line ticketing arrangement with Air Deccan.
The alliance, to be formalised soon, gives Jet a partner offering tertiary services to otherwise uneconomic locations, an arrangement that is common globally but new in India. G.R. Gopinath, Air Deccan's managing director, says sharing resources will help save 5.0-10 per cent fare prices.
Analysts remain unenthused, arguing that after a decade of non-existent competition at home, Jet's renowned service standards face genuine rivalry on longhaul routes.
The pressure to succeed beyond India may add to Jet's cash-flow worries at a time of high fuel costs and a $2.5bn investment to buy 30 wide and narrow-bodied aircraft by 2009.
And with more budget carriers set to fly in India, Jet is under rising pressure to grow its overseas unit into its major business.
Jet flies to the UK and southeast Asia and Mr Goyal believes that such services will account for half of a forecast rise in sales to $3.0bn in three years.
Sales totalled $1.4bn in 2004-05.
But analysts warn that Jet's yields could come under stress. Yields on longhaul flights are typically a third lower than on domestic.
Expansion to the US also remains subject to bilateral liberalisation. Mr Goyal however insists that Jet "will grow without killing yields and without becoming a low-cost carrier."
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FT Syndication Service
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