Vijay Mallya's Kingfisher Airlines is believed to have agreed to acquire ailing low-cost airline Air Deccan. Air Deccan had recently appointed Edelweiss Capital to source $100 million to keep it flying. Several private equity investors had put in bids to buy stake in Air Deccan.
Kingfisher Airlines will run Air Deccan as a separate subsidiary and not merge with it, said reports in the Indian media. There has, however, been no confirmation to this news from either Kingfisher Airlines or Air Deccan. On the other hand, Air Deccan CEO captain Gopinath has reportedly denied that any such deal is on.
However, the fact remains that Air Deccan is dire need of money to keep flying. The low-budget airline is making losses every day. Despite its market dominance, Air Deccan has moved deeper into the red with increasing market share. On the other hand, Kingfisher is part of Vijay Mallya's cash-rich UB Group. An acquisition of Air Deccan immediately pitchforks Kingfisher as India's No.1 airline, pushing current leader Jet Airways into the second rung.
Among other bidders for a stake in the airline in return for equity were Texas Pacific Group, Irelandia Investments and the Reliance-Anil Dhirubhai Ambani group. In anticipation of a possible deal, the Air Deccan stock had swiftly climbed in the past fortnight, prompting Air Deccan to seek an investigation into it by the stock market regulator Sebi.
However, a possible acquisition of Air Deccan has its pitfalls. The low-cost airline model in India has not led to profits so far. Vijay Mallya has consistently been derisive of the low-cost model, and has mocked that airlines like Air Deccan, GoAir and IndiGo are in fact low-fare airlines, since the costs of flying in India are mostly the same. Unlike in the west, there are no secondary airports with lower charges for low-cost airlines in India.
Again, Air Deccan's brand image is the direct opposite of Kingfisher Airlines. Kingfisher prides itself as the premium airline which indulges its passengers -- who it rather snootily calls "Guests" -- in luxury, while Air Deccan's customer care has often been the stuff that nightmares are made of. Ever since Air Deccan unleashed its network expansion, there have been innumerable complaints of shoddy customer care, overbooking, delayed flights and frequent cancellations. Air Deccan has often brushed aside all criticism of its operations, saying with the fares it charges, there is little more it can offer in terms of services.
Which, sadly, is true. Air Deccan's base flight fares are usually much less than the taxes one has to pay on the ticket. Frequently, Air Deccan comes up with discount schemes which offer tickets for as cheap as Re 1. While this cut-throat pricing model has helped it build marketshare rapidly, it has come at the cost of brand image and bottomline.
This is the season of consolidation for India’s aviation sector. The two government-owned airlines Air India and Indian Airlines have merged and will start operating as a single entity from July 15. Private sector leader Jet Airways has acquired Air Sahara to become the No.1 private airline. With the upcoming acquisition of Air Deccan by Kingfisher, the stage is set for the giants to take wing.
(talkingtarmac.com)
Kingfisher Airlines will run Air Deccan as a separate subsidiary and not merge with it, said reports in the Indian media. There has, however, been no confirmation to this news from either Kingfisher Airlines or Air Deccan. On the other hand, Air Deccan CEO captain Gopinath has reportedly denied that any such deal is on.
However, the fact remains that Air Deccan is dire need of money to keep flying. The low-budget airline is making losses every day. Despite its market dominance, Air Deccan has moved deeper into the red with increasing market share. On the other hand, Kingfisher is part of Vijay Mallya's cash-rich UB Group. An acquisition of Air Deccan immediately pitchforks Kingfisher as India's No.1 airline, pushing current leader Jet Airways into the second rung.
Among other bidders for a stake in the airline in return for equity were Texas Pacific Group, Irelandia Investments and the Reliance-Anil Dhirubhai Ambani group. In anticipation of a possible deal, the Air Deccan stock had swiftly climbed in the past fortnight, prompting Air Deccan to seek an investigation into it by the stock market regulator Sebi.
However, a possible acquisition of Air Deccan has its pitfalls. The low-cost airline model in India has not led to profits so far. Vijay Mallya has consistently been derisive of the low-cost model, and has mocked that airlines like Air Deccan, GoAir and IndiGo are in fact low-fare airlines, since the costs of flying in India are mostly the same. Unlike in the west, there are no secondary airports with lower charges for low-cost airlines in India.
Again, Air Deccan's brand image is the direct opposite of Kingfisher Airlines. Kingfisher prides itself as the premium airline which indulges its passengers -- who it rather snootily calls "Guests" -- in luxury, while Air Deccan's customer care has often been the stuff that nightmares are made of. Ever since Air Deccan unleashed its network expansion, there have been innumerable complaints of shoddy customer care, overbooking, delayed flights and frequent cancellations. Air Deccan has often brushed aside all criticism of its operations, saying with the fares it charges, there is little more it can offer in terms of services.
Which, sadly, is true. Air Deccan's base flight fares are usually much less than the taxes one has to pay on the ticket. Frequently, Air Deccan comes up with discount schemes which offer tickets for as cheap as Re 1. While this cut-throat pricing model has helped it build marketshare rapidly, it has come at the cost of brand image and bottomline.
This is the season of consolidation for India’s aviation sector. The two government-owned airlines Air India and Indian Airlines have merged and will start operating as a single entity from July 15. Private sector leader Jet Airways has acquired Air Sahara to become the No.1 private airline. With the upcoming acquisition of Air Deccan by Kingfisher, the stage is set for the giants to take wing.
(talkingtarmac.com)