Jet Airways’ sale of 24 per cent stake to Abu-Dhabi-based Etihad Airways for $379 million (about `2,050 crore) is a win-win situation for both parties and for Indian passengers. Travellers will now have a choice of flying from smaller cities directly to Abu Dhabi and thereon to any of the carrier’s global destinations.
There is also expected to be a price war between Etihad and its Gulf competitor, Emirates, as both will be competing for the Indian passenger who will be the ultimate beneficiary. In the next three years the number of Indians travelling abroad is expected to touch 44 million so the stakes for airlines are tremendous. Etihad is in keen competition with Emirates, which flies out of 10 cities and currently has a 13 per cent market share of international travellers from India.
The government has agreed to give Etihad permission to fly to 11 more cities in India in addition to the nine it already flies to and both Etihad and Jet will get an additional 37,000 seats a week from the present 13,000. This generous enhancement of flights by the government has, as expected, caused serious worry among Indian domestic carriers, including Air India, who feel they would be deprived of air traffic. For Air India it is a double whammy because it has to fill the several Dreamliner aircraft that it would be getting and this could hurt its turnaround plan.
The aviation minister had called a meeting of domestic airlines and airport representatives to hear their views about the government’s intention to increase the number of seats to 37,000 a week for the next three years. Airlines and airport representatives expressed their opposition to this, but the government seems to have ridden roughshod over their opposition without giving any reasons. It is hoped that the government and its aviation ministers know what they are doing. As far as Air India is concerned, the government has been pouring money into the airline and it is expected that it will safeguard its interests.
The deal is a lifesaver for Jet Airways as it has a huge debt of $2.6 billion. Jet will not only get $379 million but will have access to cheap loans, at three per cent, from Abu Dhabi in addition to huge cost savings by way of cheap fuel. Fuel is a significant portion of the cost of running an airline and this will skew the competitive capability of the domestic airlines. This is the second deal to come through after the civil aviation policy was changed to permit foreign carriers to take stakes of up to 49 per cent in Indian carriers.