Jet, Deccan shares may soar on 'oligopoly'

Mergers and buyouts are ending cut-throat airline competition in India, and with it the Re 1 ticket wars that lost the industry $500 million last year, according to a report on the website of Bloomberg.

The carriers say rising fares will boost profits in an aviation market set to be the world's fastest-growing through 2025 after Jet Airways, the biggest domestic airline, bought Air Sahara and UB Holdings acquired a stake in Deccan Aviation.

"Consolidation is a very positive sign," said Robert Kalin who manages about 500 million euros ($687 million) of Indian stocks at DWS Investment GmbH in Frankfurt. "In an oligopoly, there is pretty good pricing power."

Shares of Mumbai-based Jet Airways have gained more than 30% since it agreed to buy Air Sahara in April. The shares may rise another 25% by December, according to Peter Negline, an analyst at JPMorgan & Chase Co. in Hong Kong.

Shares of Bangalore-based Deccan have risen more than 50% since early April including an 8% gain since UB Holdings, the parent of Kingfisher Airlines, agreed to buy a 26% stake in the carrier in May.

Priti Todi, an analyst at Batlivala & Karani Securities in Mumbai, has a "buy" rating on both Jet Airways and SpiceJet. She says SpiceJet shares may rise 44% in 11 months.

"In the next two years, most of the companies should be making a net profit, especially Jet Airways, mainly because of their pricing power," said Rati Pandit, an analyst at Mumbai-based Networth Stock Broking.

A 1% rise in gross domestic product should translate into a 2% increase in air traffic, according to a June report by Ernst & Young LLP.

"There is a tremendous amount of latent demand in India," said Amitabh Chakraborty, an analyst at Mumbai-based Religare Securities.