India's largest private airline Jet Airways has agreed to buy Air Sahara for $340m, the BBC reported. The deal gives the airline a combined domestic market share of about 32%. An earlier bid by Jet for its smaller rival fell through last year.
This means the consolidation in India's airlines continues apace. Air India and Indian Airlines having already merged. There are a number of carriers essentially in startup mode that remain independent such as Kingfisher and Air Deccan.
However, the consolidation is a sign of rapid maturing. Jet Airways is India's leading private carrier and revived its merger deal with (it collapsed last year) Air Sahara offering 14.5 billion rupees ($329 million) for an all-cash acquisition. In January last year, Jet Airways offered $500 million to acquire Air Sahara, but later began haggling over the price.
The merger creates an airline controlling nearly half of India's domestic aviation market. The combined airline would have a fleet of 89 jets. Economy of scale is a crucial issue in the airline business. With this merger, an airline with a growing overseas network is created, easily able to take on Air India. Jet Airways is about to take delivery of its first 777-300ER (picture).
India remains a high growth market but this growth is stymied by critical infrastructure problems and skill shortages. Consolidation is a highly effective means of resolving some of these challenges. An excellent summary here.
