November 20, 2018

Breakingviews: M&A can bring relief to Asia’s crowded skies

by Breakingviews.

There is hope for Asia’s crowded skies. In much of the region, too many carriers, with too many planes, charging too little have left the industry on its knees, and put price controls back on the agenda. Consolidation offers a better fix. With Indonesia’s state-owned Garuda taking over a rival and India’s Jet Airways in play, some relief may be near.

The aviation excess seen in South and Southeast Asia has few parallels globally. In India, where budget airline IndiGo now has more than 40 percent of the market, the result has been bargain-basement prices. Millions have flown for the first time, but all the major locally-listed airlines posted net losses in the most recent quarter. Further east, low-cost upstarts are squeezing flag carriers like Thai Airways.

Over-capacity is one problem. The Lion group, which includes Indonesia’s Lion Air and others, has some 450 planes on order, aviation consultancy CAPA says, though deliveries have slowed. Vietnam’s VietJet has commitments for more than 320 aircraft, or roughly five for each in its current fleet, according to CAPA.

Against this background, the crash of a Lion Air jet off the coast of Jakarta has Indonesia’s ministers debating raising minimum airfares. Unfortunately, there is little evidence that higher prices can improve safety; rules were earlier tightened after a 2014 AirAsia crash. In India, meanwhile, a price floor is being debated in private by airline executives as means of forcing the industry to raise ticket prices to make businesses viable again.

A better outcome is allowing market forces to work, as it seems will happen with Jet, likely to be swallowed up, possibly by Indian conglomerate Tata and partner Singapore Airlines. The new owners could take a more sustainable approach to price. Garuda’s Citilink arm, meanwhile, is taking over control of rival Sriwijaya Air. Fewer carriers could ease cut-throat competition.

Governments will be tempted to intervene to ease the pain but official meddling only adds to regulatory complications in a notoriously difficult sector. Politicians should stick to focusing on fuelling efficiencies by improving infrastructure. Airlines can deal their way out of their price problems.

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