Kingfisher Jet alliance – Prima facie a cartel

Thank God, some of the media people have woken up and are calling the Kingfisher Jet alliance a cartel. ET has stated in its editorial that the alliance “may be” anti-consumer. Why may be? Prima Facie, it is. Any agreement, whatever the terms, between the two will be anti-competitive and anti-consumer. This is against the MRTP Act. Whenever, two major competitors sit down on a table to work together to save money, that is, make more profits, you don’t have to be a rocket scientist to figure out that it is going to be against the law and the consumer is going to get screwed (to put it mildly).

I am surprised that Naresh and Vijay think that we are all stupid. What does route rationalization mean when the combined entity is concerned? It means reduction in joint supply. Reduction in joint supply means less competition. Reduced competition means higher prices and poor service for the consiumer.

Now when Kingfisher was not being allowed to fly abroad, Vijay Mallya was after the government to change rules. He wanted a level playing field. A free hand to fight the competition. When it suits them, these guys want a level playing field and say that they are not afraid of the competition. Now Naresh Goyal says, “There is no point in fighting, because everybody is bleeding.” I thought this is what competition was all about. Also, Naresh is not thinking about the customer or that he is breaking the law. If this is the case, we can go back to just Indian Airlines flying the skies. Why do we need Jet and Kingfisher. If we have to create monopoly, lets have Indian Airlines there rather than get Naresh Goyal and Vijay Mallya rich.

Hitesh Patel, VP Kingfisher says, “With two giants coming together, it is a win-win situation for both of us.” Sure when you create a monopoly, it is a win-win situation for just the firms but not for anybody else. Hitesh should note that in order to avoid this unhealthy win-win situation for businesses at the expense of consumers is why MRTP was established.

There is no excuse for these airlines to act the way they are doing. They entered the airline business knowing the aviation fuel policy of the government. Practically, everybody in the airlines industry knows that the industry goes into the crisi mode whenever the price of fuel increases. And I am sure this has happened in Vijay Mallya’s liftime a number of times unless of course he was just having having a GOODTIME on his own beer. So why is Vijay Mallya crying now? When the valuation of his company was increasing, he didn’t offer to share it with the general public. I think he can still survive by selling a stake in the company but he doesn’t want to sell now because the valuations are down.

Let me suggest to you what is Naresh Goyal and Vijay Mallya’s plan. They are in trouble. They need funds to survive. There are two reasons why they are against raising funds today. One, the interest rates are high. Two, the valuations are low. So both of them come with a fantastic plan which is as follows:

(a) Raise funds temporarily to tide over the short term situation. Make the customers pay for their short-term requirement of funds by creating a short-term monopoly.

(b) With reduced competition, they will reduce their service levels as well as raise their prices. They have already sacked 2000 employees and more could get pink slip. Hindustan Times has already speculated that the prices will go up as a result of their alliance.

(b) Even if their agreement is against the MRTP Act, it will take time for MRTP to investigate. All they need is just 5-6 months. After that, even if they have to reverse the agreement so be it because they expect the market to stabilise by that time. Their valuations will go up and they will be able to sell part of their stake at a higher price.

(c) What about government action? Government has already been neutralized. Praful Patel has already given his blessings. I believe the whole plan was run by Praful Patel before Jet and Kingfisher announced their alliance. Praful Patel was not surprised at the news. He said that if DGCA does not have any objection, he will not have any objection.

While having lunch today, I heard the news that rioting had broken out at Jet’s office in Mumbai. CPM is saying that they will not let Jet operate from Kolkatta. This is now turning into a serious problem for both these guys.

Now I do not feel that political parties should get involved in issues like employee retrenchment as that is a business decision. However, in this case I feel that Jet and Kingfisher are doing something illegal and there is no way to legally stop them from going ahead with what they have proposed. They will easily get enough time to take the customer and the employees for a ride.

As I have mentioned in my earlier posts on the blog, Vijay Mallya pursued unrealistic growth and landed himself into trouble. In order to recover from past mistakes, he adopted illegal means. If I was in his place, I would have pruned my operations as per the market demand and raised funds by selling a part of my stake even at low valuations (if that was the only choice) instead of becoming greedy and trying to adopt illegal and unethical methods.

Hope this turns out to be a lesson for others.

Avinash Narula

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