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Jet Airways to Buy Rival Indian Airline

Posted on: Friday, 20 January 2006, 12:00 CST

By Saritha Rai

Jet Airways said Thursday that it would buy Air Sahara in the first sign of consolidation in India's increasingly competitive airline market.

Jet Airways (India), the country's largest airline, said it would pay $500 million in cash for Air Sahara's parent, Sahara Airlines. If the deal goes through, the combined company would control half of the domestic market.

The deal was ratified on Thursday by the board of Jet Airways and is now awaiting regulatory approval.

The acquisition would be the biggest airline takeover ever in India and the first in a decade. It would make Jet Airways the owner of the largest carrier, with the biggest fleet, most flights and most passengers.

More than a dozen airlines compete in the Indian market, many of them relatively new, low-cost carriers. Despite the big domestic market share of a combined Jet Airways-Air Sahara, their combined strength would not shake up the market, analysts said.

"It will neither create a monopoly nor will it lead to fares going up because market size is expanding rapidly and the entry of new players is unrestricted," said Sandeep Bhatia, head of research of UBS Securities in Mumbai.

Bhatia said the consolidation was a sign of the competitive structure of the market. There is even a possibility that the two state-owned airlines, the international carrier Air India and the domestic carrier Indian Airlines might merge, he said. G.R. Gopinath, managing director of Air Deccan, a low-cost rival, said: "It shows that the market is vibrant. Less than 1 percent of one billion Indians fly currently, so a monopoly is yet a distant market scenario."

Air Deccan shook up the market two years ago with cheap tickets, forcing rivals like as Jet Airways and Air Sahara to offer lower fares. Gopinath said Air Deccan would be unaffected by takeover. "Our target is the train travelers," he said. "We are mining the bottom of the pyramid."

Air Deccan started in September 2003 with one flight a day with 50 passengers. It now offers 200 flights a day and carries four million passengers a year.

India's airline passenger market has grown steadily since liberalization opened the skies to privately owned airlines in the 1990s. Growth has surged in the last couple of years with low-cost airlines offering fares as low as 500 rupees, or $11.25, enticing middle-class train and bus travelers to the skies.

Source: International Herald Tribune

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