The Jet-Etihad deal may be only the first of many such tie-ups that will lead to a radical transformation. Carriers like SpiceJet, GoAir and IndiGo may also obtain foreign partners. It will be no surprise if those investors are Arab or Gulf airlines like Qatar Airways and Air Arabia.

Last month’s momentous deal between Jet Airways, India’s second-largest carrier by market share, and Etihad Airways, the national airline of the United Arab Emirates, triggered varying reactions. Most aviation analysts welcomed it as a winwin agreement for both—Jet because it should help it emerge from financial distress and achieve a great leap forward on the international scene and Etihad because it will gain preferential access to the fast-growing Indian market. There are hopes that it will make the long-suffering Indian passenger king. There are also apocalyptic prophecies that the deal will be the final nail in the coffin of Air India. All shades of opinion, however, are agreed that Indian commercial aviation will never be the same again.

Jetting West to Fame and Fortune

One of the ironies of this deal, that’s still subject to shareholder and regulatory approval, is that the promoter and Chairman of Jet Airways, Naresh Goyal, was a staunch opponent of the government’s proposal to permit foreign airlines to hold up to 49 per cent stake in Indian carriers. But determined to emerge on the right side of history as Jet has invariably done in the past, he began scouting around for a foreign equity partner. After eight months of tough bargaining, the landmark deal with Etihad was done. Perhaps Jet was driven to desperation by its huge debt which amounted to $2.16 billion ( Rs. 11,800 crore) at the end of last year. Its survival hinged on a profitable tie-up that would bring in some much-needed cash and facilitate its rapid expansion overseas to create a steady revenue stream.

Westbound traffic from India already at about 28 million passengers annually, is growing at 10 per cent per year and may surge to 40 million in three years. Jet naturally wants a fat slice of the cake. A hub at Abu Dhabi will give it a springboard not just to the Middle East but to Africa, Europe and North America as well. Etihad has a large network in Europe where it touches 17 destinations and through its elaborate code-sharing agreements with 13 airlines, offers seamless connectivity to 88 cities. Jet Airways currently touches only Newark and Toronto in the highly lucrative and growing North American market. But flying Jet-Etihad, passengers could also travel seamlessly through Abu Dhabi to Chicago, New York and Washington. And thanks to Etihad’s code-shares with American Airlines and Air Canada, they could jet comfortably and conveniently cross most of North America. Besides, a recent agreement between the US and UAE to establish a US Customs and Border Protection (CBP) pre-clearance facility at Abu Dhabi International Airport should persuade travellers to use the Etihad/Jet Airways combine and escape the rigours of the US immigration service.

The deal may also help Jet Airways tap Etihad for capital at affordable rates, enabling it to pare its debt and embrace further expansion. It will give Jet greater clout to seek discounts on aircraft purchases, airport charges and fuel. Jet will be able to lift cheap fuel from Abu Dhabi, sharply lowering the cost of its international operations. Among other areas of cooperation are shared parking and landing slots as also ground handling and maintenance. Established in 2003, Etihad Airways is one of the world’s finest and fastest-growing carriers and is expected to bring with it global best practices.

Time to Celebrate

Whatever reservations there might be on the ultimate desirability of this strategic partnership, it will surely benefit travellers in more ways than one. Frequent flyer programmes are all the rage nowadays and expanded code-sharing between Jet and Etihad means that the 4.4 million frequent flyers of the two airlines will gain from reciprocal “earn-and-burn” rights. With Jet establishing a major hub at Abu Dhabi, travellers will obtain direct access to the Jet-Etihad network of 140 destinations including 52 cities in India and an expanded global network of 368 destinations through code-shares with other airlines. This is good news especially for passengers in the 23 Tier-II and Tier-III cities across India who till now had to find their way to the nearest metro before flying overseas. They will enjoy vastly improved connectivity and lower fares. Their home cities will also benefit through increased investment, travel and tourism.

Etihad has no home market worth the name and needs a steady stream of passengers to fill its growing fleet of wide-body aircraft. Now India will function as its home market. Etihad currently operates 52 flights a week to nine Indian cities and has just two per cent of the Indian market. But that could change dramatically once the deal with Jet Airways takes effect. Emirates Airlines, which at present enjoys around 13 per cent share of overseas traffic through its hub at Dubai, is likely to feel the heat. The new Jet-Etihad alliance will provide it some stiff competition. The good news is that fares on the India-Gulf sector are bound to drop.

Market Manoeuvres

At present, 60 per cent of Jet’s revenue accrues from international operations while it faces significant hurdles to domestic growth. With its 26.2 per cent domestic market share, it is slightly behind IndiGo (27.4 per cent) but well ahead of the national carrier Air India (20.7 per cent). Its tie-up with Etihad will facilitate rapid expansion in operations overseas. The deal was underpinned by an agreement between India and Abu Dhabi for a threefold increase of bilateral access to 49,970 seats per week on each side. Thanks to this increase, the implications of the Jet-Etihad collaboration will be more international than domestic, at least in the initial stages.

India’s domestic market may not be greatly affected and that might be a good thing because the airline industry is delicately balanced. With Kingfisher Airlines out of the way, low-cost carriers, IndiGo, SpiceJet and GoAir, are doing reasonably well despite systemic weaknesses in the aviation sector like high fuel costs, cutthroat competition and declining passenger traffic. If the Jet-Etihad duo succeeds in capturing greater domestic market share, it could trigger another round of fare cuts and falling yields which the airlines can ill afford. There’s also a plan by Asia’s biggest low-cost airline AirAsia, Tata Sons and Telestra Tradeplace to set up a nofrills carrier, initially operating from Tier-II cities in South India. It is expected to launch operations within months, accentuating further the already stiff competition in the domestic market. The new airline plans to increase fleet strength to 37 aircraft in five years.