Greece’s two largest airlines have agreed to merge, in an effort to challenge stronger European competitors.

The deal is expected to ease the price competition between the two airlines, allowing the new organisation to face challenging economic conditions in Greece.

The nation’s GDP fell by two per cent during 2009, with further falls expected this year.

As a result, the carriers are expected to see declines in both revenue and passenger traffic during 2010, with domestic routes – which they dominate – likely to be hard hit.

The deal is likely to be completed this year, or early in 2011, with the new entity set to carry the Olympic Air logo.

Olympic Air was bought from the Greek government by investment holding company Marfin Investment Group (MIG) for €177.2 million, following the closure of predecessor Olympic Airlines in September last year.

“The relative size of our competitors within the European Union necessitates the joining of the two main Greek airlines to achieve increased autonomy in serving our country’s tourism, increase route options for consumers and ensure the long tern viability of the two airlines,” Aegean’s chairman Theodore Vassilakis explained.

Aegean Airlines and Olympic Air control up to 95 per cent of all domestic passenger traffic to Greece, but have struggled to make an impact on the international market.

Aegean flew some 6.57 million passengers in 2009 over a total of 24 domestic and 26 international routes. Olympic is estimated to have flown more than four million passengers last year, offering departures on 41 domestic and 15 international routes.

“The prevailing conditions in the Greek economy as well as in the aviation sector dictate the combination of forces in order to maintain competitive customer prices, protect levels of employment and increase our competitiveness at a European level,” stated Olympic Air’s chairman Andreas Vgenopoulos.

The proposed merger will require the backing of the European Competition Commission.

Kingfisher Airlines

In further aviation news, Kingfisher Airlines - India’s leading domestic carrier - has been lined up to join the oneworld alliance.

Following the signing a memorandum of understanding, the airline has applied to India’s Ministry of Civil Aviation for authority to proceed with membership.

British Airways will support Kingfisher through its alliance implementation program, as its oneworld sponsor, with its first oneworld flights likely to be scheduled during 2011.