Analysis: Jet Airways asks for Indian government approval to join Star Alliance

Earlier today, a report from (India’s version of the Wall Street journal), stated that Mumbai based full service carrier Jet Airways has formally asked the Indian government for approval to join the Star Alliance global partnership of carriers.
Readers of Bangalore Aviation will remember that beleaguered national carrier Air India was put on hold indefinitely by Star Alliance in August of last year after a more than 4 years long admission process when Star Alliance claimed that Air India did not meet the minimum standards required for membership. While the fiasco cost Air India *only* Rs. 69 Crore (a veritable drop in the bucket for an airline that loses close to Rs. 20 Crore daily) in Star Alliance entrance fees, as well as the loss of a few minor code share partnerships with non-Star Alliance airlines, the rejection severely wounded the Government of India’s (GOI) pride as Air India became the first airline out of 28 applicants over 14 years to be rejected.  Rumors (unsubstantiated but credible) also emerged from our sources that GOI was particularly incensed by Star Alliance’s insistence on admitting Jet Airways into the alliance simultaneously with Air India.
The rationale for Jet Airways to join Star Alliance is very clear for both parties.
Said Jet Airways senior vice-president, planning and alliance, Raj Sivakumar, in a 16 July letter to aviation secretary Syed Nasim Zaidi:

In order to build the right global partnership and to support our future expansion plans, Jet has been evaluating the potential of joining a global alliance. We are pleased to inform you that we have made the decision to join Star Alliance….We request ministry approval to join Star Alliance. This would allow us to complete the comprehensive integration process as soon as possible in order to be better prepared for our planned international expansion.

Meanwhile, Star Alliance CEO Mark Schwab said in a March letter to Jet Airways chairman Naresh Goyal:

“I am writing following our last week meeting to confirm the interest of our members in naming Jet Airways in Star Alliance. Our members feel that the membership of Jet Airways in Star would be of mutual interest to them and Jet Airways, evidenced by the continuing discussions over several years. We trust that you share the same view…. To move this along, I would invite you to confirm the interest of Jet in joining Star Alliance, which we would take to the chief executive board for final approval and following which, we would establish project teams to manage and drive integration process.”

For Jet Airways, joining Star Alliance would present immediate financial benefits. It would right increase exponentially the value of the JetPriviledge frequent flyer program which has lost some of its luster in the past year, because JetPriviledge members would now be able to earn and redeem miles across Star Alliance’s global network, which encompasses more than 1,356 destinations in 193 countries around the globe. This would instantly make Jet Airways’ frequent flyer program the most attractive one in India for frequent international travelers, which could drive significant increases in JetPriviledge member levels. It would also increase the value of JetPriviledge for existing members, who in addition to the aforementioned international earning and redemption would also get the chance to qualify for Star Alliance Silver or Gold Status, which give frequent flyer access to Star Alliance lounges, free checked bags, and a host of other benefits when flying Star Alliance carriers. 

From a general business strategy sense, Jet has the closest relationships with Star Alliance carriers already, especially with part-Lufthansa owned Brussels Airlines who provides European and a touch of African feed into Jet Airways’ India-North America scissors hub in Brussels. Joining Star Alliance would allow Jet Airways to potentially pursue the trans-Atlantic joint venture strategy we outline in part one of our analysis of Jet Airways’ international operations (part 2 will be out soon). Jet will also get the lion’s share of Star Alliance premium and business travel within India (a source of additional revenue), and will be more easily able to flow its passengers onto the Star Alliance network at international Star Alliance hubs like Frankfurt and Brussels in Europe, Newark and Toronto in North America, and Bangkok and Singapore in Asia.

For Star Alliance, the addition of Jet Airways fills the single biggest “hole” in their global network; India. While Star Alliance does have the best bracketed coverage of India by any of the three major global alliances, by virtue of large Indian operations from Lufthansa, Thai Airways, and Singapore Airlines, India is undoubtedly the most important market in which Star Alliance is lacking. So the single biggest benefit provided by adding Jet Airways to the alliance would be to give the alliance an impenetrable edge in the Indian domestic market and unparalleled access to India. Similar benefits would apply to general Star Alliance frequent flyers that fly to India often, who would get access to more lounges within India as well as better earning and redemption for Indian flight.
While the mutual benefit is patently obvious, the more interesting question is how will the Ministry of Civil Aviation respond? GOI has been known to hold grudges before as any government is wont to when its perceived interests are challenged. Air India is GOI’s “baby” for lack of a better word, and when somebody attack’s its baby, no mother is eager to provide assistance to the attackers. On the other hand, allowing Jet to enter Star Alliance would be clearly beneficial to many Indian citizens, which is something that GOI is mandated to accomplish. So the essential question is whether the stung pride of GOI and the civil aviation ministry has healed enough to allow Jet’s entry. Naresh Goyal is a man with serious clout in the civil aviation ministry and that opposing force will be enough to make the discussion of Jet Airways and Star Alliance compelling theater at the Ministry of Civil Aviation in the coming months

About Vinay Bhaskara

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