India and China - 2 New Basket Cases?

Both India and China are suffering from the affects of the global recession. India remains down after suffering from the high price of oil during the summer. China on the other hand is suffering from some mis-steps that have been both self inflected and some external problems.

For China now the consolidation appears to be under way with a contraction from the current big 6 down to perhaps 4 or even 3 major carriers. The first to succumb from the urge to merge is the oft engaged China Eastern and Shanghai airlines. Interestingly the architects of the failed SQ marriage appear to have been given the boot with the New Chairman of China Eastern being the former Chairman of China Southern and the new President being from CNAC.

For India the consolidation process is now being felt in the domestic market. Indian Ministry of Civil Aviation reported November's domestic traffic highlights as follows: Total - Passenger numbers: 3.0 million, -21.7% year-on-year fall 2008 from 2009. With Kingfisher and Jet now coordinating activities they form the most powerful block in Indian Aviation's domestic market with over 50% of the market. Here are the rest of the results for November 2008:

Jet Airways (including Jetlite): 802,000, Down (for mainline -33.1%);
Kingfisher + Deccan: 746,000, Down (for Kingfisher -33.1%);
Air India: 539,000, Down -10.0%; (including Indian Airlines)
IndiGo: 441,000, +16.7%; a surprising growth spurt puts them into 4th place ahead of
SpiceJet: 325,000, -19.6%;
Paramount: 71,000, +121.9%;
Go Air: 70,000, -59.1%;
MDLR: 7,000, n/a;

So traffic is definitely going down there.

This will reshape the market and poses a challenge for the OTAs in the market. However alliances are not that stable. So can we rely on Jet and Kingfisher (with their chairman and their reported strong egos) staying friends? That remains to be seen.

Cheers

Little Trouble in Big China - the China Eastern Saga

Some of you (us) might be just a little confused in the shenanigans going on over at China Eastern. I know I am.

This doesn't make sense.

Singapore Airlines (SQ) made a play To take a minority stake in the Chinese airline (MU). It made sense. Bringing in Western Style discipline but with a distinctly Asian style that SQ has made all its own. Bringing MU up to World class standards wa very attractive to all concerned.

However not EVERYBODY agreed.

China's big fish airline Air China (CA) doesn't like too much competition. It is much happier if there is fractured and unaligned or weak competition. Oh yes and CA's parent China National Aviation Corp sits on MU's board. So just before the end of last year, China National Aviation Corp started making public noises about how it didn't like the merger and that it would offer a lot of money for a much larger stake in MU. Before you can say Kung Fu - they veto the Tamasek/SQ deal and then offer $1.9 Bn for 30% of China Eastern.

To nobody's surprise this was rejected by MU's management and board. At the same time Air China offered a tie up alliance with MU. Again rejected.

Now comes news that MU has jumped into the other side with an alliance with fellow struggler China Southern (CZ). Are you keeping up so far?

So let's see if we can sort out the alliance players here.

MU is not a member of any alliance.
SQ is in Star
CA just joined Star
CZ just joined Skyteam
CX (CA's partner and cross shareholding) is in OneWorld.

So what is the likely outcome?

For veteran China watchers like us... this is just another nice example of the convoluted arrangements in the Middle Kingdom. It will ultimately have a happy ending. Just don't expect one any time soon and the outcome will be a true example of face saving and complexity.

Got it?

And another thing... are alliances really that useful for consumers?