Press Trust of India reports that fair trade practices body Monopolies and Restrictive Trade Practices Commission (MRTPC), today, ordered a probe into the operational alliance formed between two leading private carriers, Jet Airways and Kingfisher Airlines.

According to highly placed sources, taking a suo moto cognisance based on media reports, the MRTPC ordered its investigative arm, Director General of Investigation and Registration (DGIR) to conduct a preliminary investigation.

In an order the MRTPC asked the DGIR to submit its report within 60 days effective today.

The order comes within days of Jet and Kingfisher announcing formation of an alliance for co-operation in several areas, including joint fuel management, common ground handling and cross-selling of flight inventories.

The alliance has bough together the two airlines which account for nearly 60 per cent of market share. It envisaged sharing of their network and resources to meet the challenge of aviation downturn.

While Jet had earlier acquired ailing Air Sahara, Kingfisher had taken over the crisis-ridden Deccan to emerge stronger till the rising costs and global meltdown hit them hard with each of the entity losing about Rs 10 crore a day.

Announcing the alliance, Jet Airways Chairman Naresh Goyal and Kingfisher Airlines chief Vijay Mallya had insisted the alliance had no equity involvement.

As per the alliance, the two airlines were also looking for code-sharing on both domestic and international flights, subject to DGCA approval, cross-utilisation of crew on similar aircraft types and reciprocity in Jet Privilege and King Club frequent flier programmes.

According to a Press Trust of India (PTI) report, the downturn in the aviation sector yesterday brought the differences among UPA ministers into full play on issues like the bailout for the beleaguered industry.

The Labour Ministry convened a tripartite meeting to discuss the sacking of 1,900 Jet Airways employees. “We will seek details of employment and inspect the work contracts of the employees to decide if action can be initiated against the airline,” said a Labour Ministry official from Mumbai. This decision was taken after Union Labour Minister Oscar Fernandes sought and got a report from the Chief Labour Commissioner on the Jet episode.

After yesterday’s meeting of the Union Cabinet a senior minister said that the government had little to do with the internal decision of an airline, and said that Jet Airways did not figure in the Cabinet discussions. But senior ministers differed publicly on the demand of airlines for official succour in the form of massive cuts in taxes and levies, primarily on jet fuel - blamed for the poor financial health of the companies.

Batting for concessions to the ailing sector, Civil Aviation Minister Praful Patel said that unless ministries work together and come out with solutions, there will be no relief. “As a politician, I would also not like anybody to lose jobs,” said Patel. Apparently irked by Patel's comments that he was disappointed that ministries were not cooperating, Petroleum Minister, Murli Deora hit back by saying that he had helped broker a deal between Jet and Indian Oil Corp for a 60-day fuel credit facility.

“But they have not kept the agreement,” said Deora, adding that Jet had defaulted on payment of Rs 259 crore on bills raised more than two-and-half months back. But Jet said that their payments were being made within the stipulated time. When asked about Patel's statement R S Pandey, Secretary, Petroleum said, "If there are demands for reduction in taxes, the issue is to be addressed by the Finance Ministry and the respective state governments.”

Deora separately criticised the timing of the decision - the middle of the festival season. “I do not approve of (the retrenchment) you just cannot do such a thing. This is not the right time to retrench people, particularly before Diwali,” said Deora.

Patel further informed that on a personal level he will try to talk to people and see how maximum number of people could be accommodated. But the airlines say they have to protect the employment of 11,000 permanent staff and in that context, the jobs of 2,000 temporary employees may have to foregone. The CPI(M)-affiliated trade union, Centre of Indian Trade Unions (CITU), registered a complaint with the Labour Commissioner's office in Mumbai regarding the layoffs, while the Aviation Industry Employees' Guild (AIEG) threatened to boycott the airline across all airports.

Jet Airways, which has struck an operational alliance with Kingfisher Airlines to cut costs, expects the lay-offs to result in savings of USD one million a month. ATF or jet fuel price, which account for a major chunk of airlines' operating costs, have been reduced twice in two months to Rs 56,447.80 per kilo litres (in Delhi) as of September 30, 2008. But Wolfgang Prock-Schauer, CEO, Jet Airways had said that despite the decrease in ATF prices, the prices remain around 50 per cent higher compared to a year ago.

Despite the deregulation of pricing of ATF on April 1, 2001 the control of supply by government owned oil companies, and ridiculous taxes, ensure that ATF in India is about 170% of the international price. Over the base price, customs duty of 5%, excise duty at 8%, education cess of 3%, and state sales tax at an average of 25% is levied. State taxes and excise duty amounts for about one-third of the price of ATF.

Praful Patel justified the demand for reduction in taxes on fuel by saying that the airline industry was a job creator like any other and needed attention. The government is awaiting the report of an expert group, which is looking into the demand of the industry for a Rs 4,750 crore ($1 billion) bailout package.

In a major move to reducing emissions and traffic, while increasing reliability and purity, Indian Oil, commissioned its 36 km long pipeline from its bulk storage terminal at Devanagonthi to Bengaluru International Airport at Devanahalli, where its joint venture with Skytanking GmbH of Germany, IndianOil Skytanking Ltd. (IOSL), is the primary Aviation Turbine Fuel (ATF) vendor.

The underground pipeline costing Rs 330 million, has a capacity to pump over 156,000 litres of ATF per hour which can be further scaled up to over 220,000 litres in the second phase.

The pipeline will replace the over 80 tanker trips up and down, drastically reducing the traffic congestion and the resultant pollution being pumped in to the air around Bangalore. Safety at the airport will also increase, as previously, the tankers would be lined up on the road in front of the upcoming cargo village.

The new pipeline will ensure the supply of uninterrupted and pollutant-free ATF to the Bangalore International Airport meeting international quality standards, and will avoid supply issues, during bad weather, strikes, and other disruptions.

The new pipeline crosses over 18 major roads, four water courses and five highways enroute and has been designed and executed conforming to global standards like ASME and OSD. The entire pipeline system is also protected with dual fusion bonded epoxy (DFBE) coating to protect it from external corrosion.

The the whole supply process is monitored using Supervisory Control and Data Acquisition system (SCADA) with various fail-safe, safety and security mechanisms.

IOSL handles about 160 daily re-fuellings of both international and domestic airlines at Bengaluru International Airport.

Kudos to both IOSL and BIAL for their progressive approach.

SpiceJet announced a drop in its fares on advance purchases of tickets. Apart from a reduction in basic fare for flights booked 10 to 15 days in advance, SpiceJet will also remove the congestion surcharge of Rs 150. The airline is trying to help passengers who plan their holidays and business trips in advance.

Announcing the cut, Samyukth Sridharan, Chief Commercial Officer, SpiceJet Limited said, “Fares on our network will be now significantly lower on advance purchase. We have removed the congestion charge completely. With improved infrastructure available, we do not face this problem anymore and our 'On Time' Performance across the network is also on an all time high at 88 per cent. Since there is no congestion impacting our service, we want to pass on the benefit to the customers."

He also announced, “In addition to this we also launch our Special Spicy fares which will ensure our consumers have up to 15 per cent saving on advance purchases."

“We are also re-launching our services to Jaipur from October 26, 2008. We have seen very good bookings on our newly introduced Mumbai – Jaipur sector. We also offer Mumbai – Goa on a more convenient timing and our flight to Srinagar from Mumbai will now also connect Jammu along with Delhi and help more traffic into the region,” he concluded.

In a complete U turn, Jet Airways Chairman, Mr. Naresh Goyal held a sentimental and emotional press conference and announced a reinstatement of all sacked employees.

In less than 24 hours claiming all staff are family, Mr. Goyal stressed it was an economic decision to lay off, but an emotional one to reinstate. Keeping in view, the criticism by all political parties, he took special pains to stress that this decision was not due to any political pressure.

Signs of pressure appeared when Petroleum minister Mr. Murli Deora, rebuffed the requests of the Civil Aviation Minister Mr. Praful Patel to help bail out the airlines with lower fuel prices. Both Mr. Deora and Mr. Patel are from Mumbai, the home of Jet Airways, and the corporate head quarters of alliance partner Kingfisher Airlines.

Mr. Goyal is known to be extremely concious of his public image and needs a sympathetic ear from government to function well. The sacking of the employees would save only about Rs. 5 million.

Given the extreme negative reaction by the public at large and the politicians in particular, it appears that Mr. Goyal has very correctly decided that the negatives far outweighed any potential savings.

The signal to India Inc., is simple. No matter how bad the economy, large scale sacking of employees is politically very incorrect.

The blood letting in the Indian aviation industry shows no signs of stopping.

After the much publicised sacking of 850 cabin crew early on October 15, Jet Airways announced the retrenchment of another 1,050 staff, which also includes flight crews. News reports indicate that another 1,000 jobs will be cut by the end of this year.

That will bring down the workforce at Jet by 23% from 13,000 to 10,000.

The retrenchments are not limited to people. Jet is returning 7 aircraft to its lessors, and its alliance partner Kingfisher is doing the same. Readers will recall, Kingfisher laid off about 300 employees less than a month ago. Observing the reaction to the Jet layoffs, they have decided to defer their layoffs for some time.

Private airlines really have no choice. Unlike, the over-bloated NACIL (Air India and Indian) who have a sugar daddy called the Government of India, whom they have already approached for another bailout of Rs. 2,000 Crore ($440 million), private airlines are at the mercy of the market. The situation at NACIL is thanks to the constant interference by all the politicians who treat the airline as their personal fiefdom to suck benefits and dispense patronage.

The $ 6 billion Indian aviation industry is facing losses of over 33% this year. An over greedy populist fuel policy of the Union and State Governments, and their controlled Oil Marketing Companies (OMCs), ensure that Indian airlines pay double the price for fuel when compared to the international market. (Read my previous article "Fuel Populism killing Indian aviation").

Not that any of the airlines are themselves are blameless. Following a herd mentality, they rushed in and expanded blindly when oil prices were low. Following a ridiculous policy of trying to compete with the Indian Railways, they had absolutely no contingency plans when they were hit by the "Perfect Storm", of diminishing demand and rising fuel prices.

Governments who are facing elections next year, have resorted to their age old tactics of populism on a grand scale. Thanks to the pay commission increase and farm loan waiver, just two of the many multi-billion dollar expenditure sprees, meant to "help get the votes", the Finance Ministry has no manoeuvring room to accommodate the desperate and logical demands of both airlines and the Ministry of Civil Aviation to reduce the tax rates to a reasonable rate of 4%, uniformly across the nation.

The global meltdown of stock markets have not spared India either, forcing the Government to deploy what few resources are left to rescue the nation. Neither the public, nor the government, has the time, resources, or inclination to bail out the airlines.

The optimistic predictions by both Boeing and Airbus about the tremendous growth in India driving demand for their aircraft has hit ground reality with a thud. Officials of both manufacturers, are reportedly "concerned" about the near term outlook.

Airport operators across India, are facing a crisis. The need to recoup their investments and for that they need to fees. Airlines are major customers and cannot be touched. So the axe falls on you and me, the individual passenger to shell out "User Development Fee", which further increases travel costs and drives passengers from the air to the trains, buses and cars.

All I can say is, "Stay Tuned, the worst is yet to come".

Dr. Vijay Mallya and Mr. Naresh Goyal have just announced an alliance between Kingfisher Airlines and Jet Airways.

They announced only rough contours using very broad strokes. Details are awaited. At this point, no equity investment will be made.

The alliance will include synergies in routes, sharing ground handling and infrastructure, cross-selling of seats, code shares, crews, and frequent flier programs.

A coordination panel, comprising officers of the two airlines, has been formed, to work out the details, towards the goals of the alliance.

CNBC-TV18 reports that Kingfisher has suspended its US operations.

Both airlines are still in the midst of their own mergers. Jet of Air Sahara (now Jet Lite), and Kingfisher of Air Deccan (now Kingfisher Red).

There are concerns of cartelisation given these two airlines control over 60% market share, and the lack of any aviation regulator in India.

Only time will tell. But for now, the advantage is clearly with Jet Airways.

**UPDATE**
Press release received at 23:45 IST October 13, 2008

Jet Airways and Kingfisher Airlines are pleased to announce an agreement to the formation of an alliance of wide-ranging proportions that will help both carriers to significantly rationalize and reduce costs and provide improved standards of service and a wider choice of air travel options to consumers with immediate effect. The two airlines will be able to rationalize their operations and derive the maximum synergies and thereby offer the best possible fares for the benefit of the consumers. However, there will not be any mutual equity investments between the two companies.

The downturn in the world economy has severely impacted the world aviation industry. The rapid increases in and the volatility in the crude oil prices and that of aviation turbine fuel and the slowdown in economic activity has resulted in a decline in air travel both on international and domestic segments of the air travel market.

Worldwide the airline industry has sought to tackle the difficult environment through alliances and joint provision of the best possible standards of service and connectivity to the travelling public by achieving cost and operational synergies and providing extensive connectivity and by offering economical fares. Civil aviation is the keystone of infrastructure development and a key priority of the Indian Government for the development of the economy. The proposed alliance between Jet Airways and Kingfisher is in the national interest by incorporating the international best practice to strengthen the Indian aviation industry.

The alliance will also enable a stabilization of the Indian aviation industry in the larger public interest for the benefit of the customer during the current downturn of the world economies.

The Scope of the alliance will include the following areas:

• Code-shares on both domestic and international flights subject to DGCA approval.
• Interline/Special Prorate agreements to leverage the joint network deploying 189 aircraft offering 927 domestic and 82 International flights daily.
• Joint fuel management to reduce fuel expenses.
• Common ground handling of the highest quality.
• Cross selling of flight inventories using the common Global Distribution system platform.
• Joint Network rationalization and synergies.
• Cross utilization of crew on similar aircraft types and commonality of training as also of the technical resources, subject to DGCA approval.
• Reciprocity in Jet Privilege and King Club frequent flier programmes.

In the current environment of high costs and declining growth this alliance has potential for substantial savings resulting in a benefit to the consumer.

Commenting upon this path breaking alliance, Naresh Goyal, Chairman of Jet Airways said:
“All over the world Airlines have formed alliances in order to become more efficient, improve revenues and provide seamless travel opportunities for their customers. India has witnessed tremendous growth in the past which has slowed down considerably. In this environment the Jet Airways – Kingfisher alliance represents a completely new industrial model for aviation in India which would be based on an unprecedented depth of cooperation between the two companies. There will be huge cost savings and revenue enhancement opportunities arising from this alliance.”

Dr. Vijay Mallya, Chairman, Kingfisher Airlines said:
“This is a quantum leap forward in the evolution of Indian aviation which will benefit customers by delivering the most comprehensive integration in the industry. Both Jet and Kingfisher fully realize that better understanding of supply and demand in this capital and labour intensive industry is the key to profitability and enhancement of shareholder value. I look forward to this alliance delivering superior quality, cost savings, flexibility and enhanced consumer value which is the hallmark of all successful alliances.”

While maintaining their separate legal entities and brand entities both Jet and Kingfisher will examine co-branding opportunities and have formed a core committee of senior management personnel from both companies who will drive the various identified initiatives forward with immediate effect under the overall direction of Mr. Naresh Goyal and Dr. Vijay Mallya.

Signed

NARESH GOYAL
Chairman
Jet Airways (India) Limited

VIJAY MALLYA
Chairman & CEO
Kingfisher Airlines Limited