What the Jet-Etihad deal means

Last Updated: Wed, Apr 24, 2013 12:09 hrs

The Jet - Etihad deal with help the foreign carrier to expand its limited footprint in India and make Abu Dhabi an alternative hub (apart from Dubai) for Indian's traveling to US and Europe. However, for domestic LCCs and Air India it would mean more competition in the domestic skies and also loss of business in the international market.

With a market share of only 2% from India (compared to 13% of Emirates) it runs 52 flights a week (compared to 185 flights of Emirates) to and from India from 10 cities. But that could change dramatically.

An extended code-share agreement with Jet (which is now limited to only seven cities) in India would simply mean it could tap passengers seamlessly to fly to Abu Dhabi and onwards to the US or Europe now from over 53 cities from where Jet has services virtually giving them access to the entire country.

More importantly, the two governments are also negotiating an expansion of seats under the bilaterals, which if agreed would make Abu Dhabi into a hub for traffic being brought by the two airlines for further travel in US and Europe. Jet for instance has asked the government for an additional 41,000 seats a week from India to Abu Dhabi, while Abhu Dhabi has asked for an additional 25,000 seats till 2015-16.

Most aviation experts say that such a massive increase in capacity cannot be justified as the market to Abu Dhabi is not expected to suddenly grow so fast from India (currently the entitlement is 13,330 a week in bilaterals). But it will benefit Etihad by giving it access to fly directly to more and more Indian cities and also to increase its frequencies in existing cities from where they operate and feed its hub from where passengers could fly onwards.

According to sources, it has already asked to remove the cap of seven weekly flights from Delhi and Mumbai and has demanded flights from Goa, Pune and Amritsar. Clearly, it could pose as a direct challenge to Dubai which is the largest west Asian hub from where Indian passengers travel onwards to US and Europe and where Emirates is the king.

The deal also benefits Jet Airways. The two airlines already have a code share alliance on all their India-Abu Dhabi flights and extended to include it on Etihad's Paris route. Jet could now offer an alternative route for Indian passengers to fly to other west Asian. African cities and US as well as Europe apart from its current hub in Brussels.

The airline can leverage Etihad's strong presence in Europe by bringing in Indian passengers through Abu Dhabi. That is a win-win for both sides as Jet currently operates only to Brussels, Milan and London in Europe on its own. (Through code-share agreements with Brussels Airlines and Thalys, it offers seamless connectivity to another 14 cities.) Etihad, on the other hand, has a huge network in Europe; it directly flies to over 17 destinations and through its elaborate code-share agreements with around 13 airlines offers seamless connectivity to over 88 cities.

That, of course, is not the only route which could be an advantage to both the airlines. The India-North America market is one of the largest and most lucrative in terms of business. Jet Airways currently flies only to Newark and Toronto and through its code-share with United and Air Canada offers connectivity to all key markets in North America.

But Etihad can provide an alternative to Indian flyers - they can fly seamlessly from Abu Dhabi to Chicago, New York and Washington, apart from Toronto. And through its code share agreement with American Airlines, it would allow Indians to fly all over the US.

There are of course cost benefits in case the two synergise their operations. The two airlines could leverage their clout while buying fuel; they could also leverage their bargaining power with Boeing as Etihad has just ordered 50 aircraft from the American company, the bulk of which include the Dreamliners, in association with Air Berlin. Jet Airways, of course, also has a fleet that comprises mostly of Boeings aircraft and could therefore work out similar integrated deals in the future. Also, the two could pare costs by using each other's ground operations at their hubs.

It is also possible for the two airlines to integrate their sales and distribution efforts, creating joint offices, general sales agents and single marketing teams at certain offline stations

But for domestic airlines which include the LCCs and Air India the deal might not be good news. The alliance analyst say will have an adverse impact on Air India's business in the Middle East, which is a key market as well as in the US and Europe, one key reason why the Indian government until recently has been chary to open up bilaterals in these routes especially from Dubai where seat capacity is exhausted.

Domestic LCC's say that a code share between the two in the domestic skies to connect passengers to international destinations could have an adverse impact on their business. "About 15% of the LCC domestic business comes from passengers flying onward to international destinations. With a code share agreement between Jet and Etihad these passengers will now fly only Jet and we will lose the business" says a top executive of an LCC.

He also says that the Jet-Etihad alliance is bound to take away business from Emirates on the Indian- Dubai route. "Earlier Emirates did not bother of right pricing in the India-Dubai sector as most of the passengers were going onward from Dubai to US . However now with the new challenge they are bound to drop fares on the India-Dubai sector as they will have more seats to offer. And it will have an impact on LCCs which only fly point to point internationally. So our fares will be under pressure" he added.

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