According to reports, Delta is considering taking a majority stake in struggling Indian carrier Jet Airways. Currently, Jet Airways CEO Naresh Goyal owns a controlling 51% stake in the company, with another 24% stake owned by Etihad Airways. Delta is apparently looking to purchase both stakes for a majority holding of 75% in the carrier. The news caused the struggling airline shares to jump over 10%.
While Delta has not commented publicly on the rumors, the move would be an interesting move, for Delta, and could place it in a great position to take on the big three in the Gulf.
The Background
For a very long time US legacy Carriers, Delta American, And United have complained about the three Gulf Carriers. The companies alleged that the airlines had received unfair subsidies in state aid, including up to $40 billion in the last decade.
Recently an agreement between the US and the United Arab Emirates which is home to Etihad and Emirates means that both companies will have to open up their books according to international accounting standards. Part of the deal also means that the carriers will not offer any other “Fifth Freedom.” routes from the US to Europe.
Clearly, the US carriers hope that by having to open their books up the companies will face even more operating pressure and will have to cut costs. This is something that could prove problematic for Etihad which has been facing mounting financial problems in recent years.
Delta’s Motivation
Over the last few years, The Three Gulf Carriers have been hurting US and European Carriers on flights from the east coast of the US and Europe to Asia. This is especially true on premium cabin bookings since all three gulf carriers operate a hard product that blows the competition out of the water.
By taking a stake in Jet Airways, Delta can revitalize its position in the Gulf, and get a firm toehold in the region. Delta can offer flights directly from the East coast of the US to the Gulf, and then passengers can connect with Jet Airways to various destinations in Asia.
The situation on the west coast of the US is equally attractive, with Delta operating transpacific flights, and then using Jet Airways for connections, in a hub and spoke model of aviation.
Will it Work?
If Delta is successful, can it compete with the Big Three in the Gulf? This is very hard to determine, while Delta has a strong case to think it can out-compete the Gulf carriers on economy fares, where travelers are much more price conscious, it is hard to see them do so on premium cabins. Premium passengers want a great hard and soft product and are prepared to pay for it.
While Jet Airways offers a great business class and first class product, it simply is not in the same league as Qatar’s Qsuites, Emirates suites, or Etihad’s apartment. Whether Delta Can grab a big enough slice of these highly profitable passengers remains to be seen, and will be the key to whether Delta’s acquisition of Jet Airways is successful or not.
Final Thoughts
If Delta’s Purchase of Jet Airways goes ahead, we are bound to see some very interesting times ahead. Can Delta leverage its position in the US market to make a big impact in the Gulf, who knows? Either way, we will have to watch this space.
