As losses mount, rivals Jet and Kingfisher form alliance

India's two largest private airlines this week announced a major alliance aimed at cutting operating costs in an increasingly oppressive airline environment.

The heads of Jet Airways and Kingfisher Airlines said Monday they will code share on domestic and international flights and share crew, among other synergies planned. Significantly, the two will join together in attempt to make ground handling at Indian airports more efficient.

Both carriers, while maintaining their separate legal and brand entities, will examine co-branding opportunities, and they have formed a core committee of senior management personnel from both companies who will drive the various identified initiatives, said a joint statement from the airlines.

Jet recently suspended service from Mumbai to San Francisco just seven months after the route was launched, while Kingfisher has yet to take full advantage of its recently acquired license to fly internationally. All Indian air carriers have suffered heavy losses as fuel costs mounted over the summer. India's aviation industry as a whole was in the red in 2007, and that was before crude oil prices spiked this year. Media reports in India suggested that Jet and Kingfisher were having difficulty accumulating capital, a major issue since the two airlines collectively have dozens of new planes on order.

Both Jet and Kingfisher fully realize the economic realities and the benefits of having an alliance, Kingfisher Chairman Vijay Mallya said.

The deal evidently went down Monday night as Mallya met his counterpart, Naresh Goyal, first at Goyal's office, then at Mallya's luxurious Mumbai home. Though bitter rivals, both seemed to see the writing on the wall -- a situation India's Civil Aviation Minister Praful Patel characterized as huge losses and no recovery in sight. It's estimated the two airlines were losing more than $2 million per day.

Kingfisher has delayed and cut back on its massive orders to Airbus, with A340 purchases either deferred to other carriers on the order list or downgraded to shorter haul A330s. The Times of India even reported that Kingfisher owes the Airport Authority of India $40 million in back payments for airport slots.

What the development means for cargo is unclear. The two airlines will rationalize passenger flight schedules (so as not to cannibalize the other) in the hopes of raising fares. Both have nascent but growing cargo divisions. Jet on Wednesday said it was suspending its expansion plans and cutting flights during the winter by 15 percent. The economic conditions forced the airline to cut loose 800 flight attendants Wednesday, with further job cuts likely, including managers and pilots, Reuters reported.

The economic viability of the industry has been severely affected by the record high fuel prices and most recently due to the crisis of the financial markets globally and the downturn in traffic, the airline said in a statement.

Jet added that the job cuts were not a result of the alliance with Kingfisher. Analysts are already predicting that at some point in the near future, the two airlines will merge into one.

Source: American Shipper