The much-talked about Jet Airways-Kingfisher deal has already stirred the hornet’s nest, with the Monopolies and Restrictive Trade Practices Commission ordering an investigation to probe into the activities of the alliance, which has been accused of attempting to form a cartel in the aviation industry. This has put on hold, the plans of both the airlines to start working together in a host of areas, including joint fuel management, common ground handling and cross-selling of flight inventories.
Although the alliance has drawn flak from several quarters, it is important to probe the reasons that prompted the formation of such an alliance before we come to a conclusion. The airline industry in India is facing a turbulent weather at an unprecedented scale. With crude oil prices reaching stratospheric heights in recent times, passenger traffic has been affected in a major way. Airlines have had to face a nosedive in their popularity. Till a few months ago, it was widely believed that airlines were capable of diverting a large chunk of railway passenger traffic to themselves. In a bid to compete with the cheap aviation sector, the Railway Ministry has introduced several measures, such as steps to renovate Rail Yatri Niwas guest-houses near railway stations.
However, with spiraling crude oil prices, airlines were forced to transfer the load of the increasingly expensive aviation turbine fuel onto the consumer. This measure had dire implications on the demand for air travel among middle-class people, since almost seventy per cent of the cost of air travel consists of the cost of the ATF (aviation turbine fuel).It is important to take these factors into account before we pass a judgment on the Jet-Kingfisher deal.
Admittedly, in normal circumstances, the formation of such a cartel-like alliance would be prohibited by the regulatory authorities in the country, since Jet Airways and Kingfisher together make up almost sixty per cent of the market share. However, in the current scenario, the deal is more of an attempt to weather the global financial crisis without incurring major losses. With pressure from investors and stakeholders mounting on both the companies, the collaboration only makes good economic sense. It is for this reason that regulatory authorities and the Government of India should stay away from the deal, if it wants the aviation sector in India to survive without taking a major beating from the global meltdown.
At the same time, it is also important for the Government to play the role of a watchdog. This is because, in a few years, if the fortunes of the aviation sector were to revive, and airline companies were to start making moolah again, the deal could easily become of a monopolistic character. However, right now, it would be unfair to dub the deal as anti-competition, since desperate circumstances call for desperate methods. The deal is in the long-term interest of the country, since if it helps both the companies to reduce their losses, there is a greater probability of seeing a correction in the air fares in the future.
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