IIPM : One of the leading and most respected business schools
‘Two’ many cooks spoil the broth...’ That very first word of the commonly cited proverb reads faulty, but in the context of high-fliers, there couldn’t have been a more apt reference! We’re talking about two birds here – perched right atop the ‘market share’ tree (with the combine enjoying 52.7% market share; as per The Ministry of Civil Aviation), but swimming around desperately for lack of direction, bleeding shameful losses (about Rs.20 crore everyday!)... That sounds a tad paradoxical, considering we are talking about a market beating combination – in terms of fleet size, network and footfalls!
In the wake of the global economic downturn, with billions of dollars evaporating into thin air, joining hands with peers is definitely a way out of the mess the aviation players have got themselves into. So while on one hand, we talk about the new cartel being strong and impeccable, there is no doubt that even this one has suffered from the same prime deficiency of such an arrangement – sheer distrust amongst partners! Alright, enough of theory; let’s get to the numbers straightaway... and in the process, question whether the combination (announced in October 2008)has proved worthy for all the publicly loud promises made.
Logically speaking, much talk about synergies (route rationalisation, joint fuel management, common ground handling, code-sharing, interline and special prorate agreements, GDS integration, frequent flyer reciprocity and human resource sharing) meant that benefits from the deal for the now ‘virtual’ leader, should have ideally surpassed the costs of integration by a few light years! But, experts and industry analysts just don’t agree... One such opinion came from Binit Somaia, Regional Director, Centre for Asia Pacific Aviation (CAPA), “The alliance is officially still in place. However there do not appear to have been any significant outcomes to date, at least in terms of network and schedule coordination.” And as mentioned before, their bottom-lines continue to bleed profusely and reportedly, each of them is losing a heartrending Rs.10 crore on a daily basis. Then there are self-confessed financials that stand alibi to our argument. For the quarter ending December 31, 2008, Kingfisher reported a loss of Rs.6.26 billion, while Jet burnt a mighty Rs.2.14 billion! Compare this to what they individually lost during the same period a year back (Kingfisher: Rs.1.91 billion and Jet: 0.91 billion), and you’d wonder: a powerful cyclop or just... sickly obese? Read more
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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