Indian airlines in merger plans

There is intense competition for passengers in India

Two of India's airlines have unveiled a plan to merge in an attempt to boost profitability amid rising costs and falling air fares.

Deccan, Indian's first discount carrier, is entering a tie-up with the more upmarket Kingfisher Airlines.

Kingfisher is owned by alcohol baron Vijay Mallya and is named after his flagship beer brand.

There is intense competition in India's aviation sector as more people become able to afford plane travel.

There are currently 10 Indian carriers, up from three in 2003, with at least 14 more airlines seeking government approval to start flying in India.

The merger follows earlier consolidation in the sector. The country's largest domestic carrier, Jet Airways, bought Air Sahara for $340m in April.

'Logical'

Deccan has struggled this year, and sold a 26% stake to Mr Mallya's UB group in June, which was raised to 46% in October.

"The merger will bring about synergies across the board and lower the cost of operating both airlines," Deccan founder GR Gopinath said.

Next August will mark five years of Deccan operating, which means that under Indian law, it can then fly lucrative overseas routes.

Kingfisher will also gain this privilege as part of the merger.

"The merger is logical under the circumstances," said Kapil Kaul of the Centre for Asia Pacific Aviation (CAPA).

"But it has to be done right because the two airlines come from cultural extremes - one a low-cost carrier and the other a full-service premium airline."