Friday, March 1, 2013

The gulf partner

Its been sometime since I got time to write here. There were couple of reasons for this. The Indian aviation sector was for the best part of last 3 years engaged in what can one only call as an elephant spilling mud on itself. Simply put, one can say commercial aviation in India just saw almost everything that could go wrong. Typical union fights, management problems, market share loss leading to near bankruptcy, non payment of bills and salaries, cutting of important routes to come out of red, problem of plenty, competition from international airlines in traditional routes.... almost everything.

The one thing that showed positive indication was Indigo. It is in its own world. Running profitably, setting footprint internationally, placing order for more short haul Airbus workhorses. It has done well in the medium term and I hope for god's sake it continues to do so in the long term as well.

One other thing, and its about this I am gonna talk here, that caught my eye was the Jet-Etihad deal. By the time I am writing this, Jet has already come out of the red, leased out its long haul aircrafts and cut down operations, started cost cuttings across the board and down the pyramid and most importantly in the verge of clinching a credible foreign investor who can very well turn out to be a long-term partner. The facts till now has been that negotiations have been held bilaterally between the Indian commerce ministry and Jet-Etihad representatives and already Jet has sold its Heathrow slots to Etihad for $70 million.

Now what does each side stands to gain from this?

From the Jet side, they have been severely hampered in their international operations as of now with the suspension of lucrative routes like JFK-BRU-JFK, MAA-KUL etc. Its 777s have been flying in Thai's liveries and its A-330s too are having downgraded operations. It is in some serious debt but has managed well till now, never defaulting a bill or paycheck. But in the process, it has lost market share and revenue. Now it wants to scale up. But to come out of this tempest it needs the capital as well as a reliable partner to grow with. Already Jet and Etihad have been code-sharing for sometime and with the gulf carrier's cash reserve, it is only natural that the two are looking for a partnership. All that Jet is looking for as of now is to reduce the debt and slowly consolidate domestically at a time when Kingfisher is slowly being taken off in a stretcher. When its long haul aircrafts are back, it must have enough working capital to restart its North atlantic routes.

From Etihad's side the math is much simpler. It is not getting anymore penetration into the tier-2 cities and the only way to gain those traffic and match Emirates is to partner with an Indian carrier. Cities like Trichy, Madurai, Vizag, Lucknow, Amritsar, Coimbatore, Chandigarh, Nagpur etc are looking desperately at a one stop connection to North America. Jet can easily feed them to Abu Dhabi and Etihad will carry allover the world. I wont be surprised if Jet moves its international hub from BRU to Abu Dhabi and restarts one of its LHR slot and EWR service from there. After all, both have enough markets from Indian pax to run in parallel with Etihad  .

All this means, Jet is in no mood to go big international in the short-term and  just consolidate its domestic market. It needs to be seen what are its own plans with respect to Indian metro cities and North american connections.