Airfares may increase in the medium term

Airfares may be in for an upswing. Thanks to Vijay Mallya-promoted Kingfisher Airlines acquiring 26 per cent stake in country's largest and first budget carrier Air Deccan.

Industry players feel that the acquisition would encourage a hardening of fares in the medium term.

"The mindset of Vijay Mallya and Gopinath is different. Mallya would not encourage the dropping of airfares for grabbing market shares without profitability," says an industry analyst.

Endorses a senior Kingfisher Airlines executive: "We can not offer tickets at throwaway prices. There will not be free tickets anymore. It's all over."

He said this acquisition will give a better edge in "pricing" and will bring "profits" for both the airlines.

"There is lot of synergy for Air Deccan and Kingfisher, which will result in savings," he added.

Analysts added that budget carriers will now reduce their spectrum of low fares band to increase profitability and take advantage of consolidation.

An earlier consolidation between Jet Airways and Air Sahara is expected to add to the level of firmness in the market.

However, Capt Gorur Ramaswamy Gopinath, the promoter of Air Deccan told Business Standard:

"Post acquisition, Air Deccan will be a much better low-cost carrier offering cheaper prices to citizens. We have chosen Kingfisher as strategic investor as its condition matched our long term vision of business model of low cost carrier.

Mumbai-based low cost carrier GoAir, Managing Director, Jeh Wadia said: "This is good for industry and there could be some rationale in fares."

A senior Jet Airways executive said this consolidation will lead to better pricing.

"This will put a virtual halt of undercutting of airlines and throwing away tickets for ridiculous prices. This will not impact Jet Airways in any way as Air Deccan has less flights on high yield routes. And we are not interested in the virgin routes where Air Deccan is operating," a Jet executive added.

But passengers are not amused. "Kingfisher chargesfull fares. I am afraid that Kingfisher Airlines will force Air Deccan to increase fares," said Harihar Swamy, who frequently flies to Coimbatore from Mumbai by Air Deccan.