New Delhi: Vistara is all set to merge with Air India in November this year, enabling the latter to serve more customers by expanding its network with an enlarged fleet. Experts, however, remain divided over whether the new larger entity can emerge as a strong challenger for market leader IndiGo and whether the merger will entail any benefits for passengers.
Last month, Air India announced the sunset on Vistara. Starting 12 November, Vistara will become inoperative, with all its operations transferred to and managed by Air India, the Tata Group full-service airline. The combined entity will have a fleet of over 218 aircraft, with Air India inducting a new one every six days on average throughout 2024. With the 80-aircraft fleet of its subsidiary Air India Express, Tata Group would have about 300 aircraft under its wings.
However, the number still falls short of the 382 aircraft fleet of IndiGo, which currently commands a more than 60 percent market share in the Indian aviation industry. Recording a 14.2 percent market share at the end of the April-June 2024 quarter, Air India comes a distant second. On the other hand, Vistara has captured nearly 10 percent of the market since it started operations in January 2015.
Meanwhile, IndiGo, too, has announced plans to introduce a new aircraft per week to expand its domestic and international routes.
ThePrint reached the Air India spokesperson via email. This report will be updated if and when a response is received.
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A merger of necessity, not for growth
Singapore Airlines, which held a 49 percent stake in Vistara, is set to have a 25.1 percent stake in the combined entity after the merger in return for a Rs 2,058.5 crore investment.
Commenting on what the merger could achieve, Mark Martin, an aviation expert and founder and CEO of Martin Consulting, said he does not see Air India (AI) emerging as a strong challenger to Indigo.
“The background of this merger is not some great accomplishment,” he told ThePrint. “It is not a merger to make it a larger market. The merger was a desperate attempt to clean the books of Singapore Airlines (SIA) and Vistara.”
He said that in 2022, Singapore Airlines, in a filing to the Singapore stock exchange where the company is listed, stated that Vistara had been seeing losses for most of its operational years and had not broken even till then.
In the filing, the SIA said that Vistara had been loss-making and needed to be scaled up to achieve cost and network efficiency to reach profitability.
At the time, the SIA also said that there were challenges to scaling up Vistara amid stiff competition in the Indian aviation market, especially from larger incumbent Indian airline companies, which, over the years, had established a strong foothold in terms of securing air traffic rights and aircraft slots in many of the flight networks in and out of India.
The proposed merger, it added, would enable the SIA group to immediately gain exposure to an entity, which is four to five times larger in scale compared to Vistara and has access to valuable slots and air traffic rights at key domestic and international airports, via its investment, thereby helping it to strengthen its market presence.
With Vistara widely recognised as the “leading full-service carrier” in India, Air India would benefit from its operational capabilities, customer base, and a “strong focus on customer service and product excellence”, it also said at the time.
Martin said one of the problems today is how Air India is run.
“There is no great miracle that has happened after Tata Group acquired Air India,” he noted. “Service and aircraft quality are still bad. The seats remain broken. The entertainment systems do not work. The only thing that Vistara will bring to Air India is newer-looking aircraft, but new Air India and Vistara are a complete misfit in product quality terms.”
He added that this merger would not be a great value addition for passengers.
“It is the consumers who talk about the new service culture, and, so far, what we know is that it is a disaster,” he said. “It is two different mindsets coming together. It should not become a ‘brand khichdi’.”
Complementing factors to make it a force
Sanjay Lazar, an aviation expert and CEO at Avialaz Consultants, however, is optimistic that the merged entity can give strong competition to IndiGo.
He said Air India has some things working in its favour—its bilateral agreements and slots, international routes, wide-body fleet, and multiple verticals in the ecosystem.
The Tatas, he said, are creating an entire aviation ecosystem, including an integrated training academy and an upcoming pilot academy, and partnering with SIA Engineering Company Limited (SIAEC) to enhance MRO (maintenance, repair, and operations) facilities.
“Yes, it (the merged entity) will be a strong competitor to IndiGo,” he said. “Moreover, Air India and IndiGo will be strong global players to fight Middle Eastern carriers. This merger was not planned yesterday or even in 2022-23 but planned as a larger consolidation by the Tatas, in sync with SIA, even before the purchase of Air India in 2021-22.”
He said the entire fleet selection, renewal programmes, route network, positioning, and crew induction programmes are geared towards a merged carrier.
“Both groups have similar order books, so they are going parallelly,” Lazar added. “Air India has a larger international network and has not focused on domestic so far, but with its narrow-body fleet, it will effectively do so now. IndiGo will go international with its wide bodies. So, interesting times are coming.”
He, however, noted that some of the challenges for Air India going forward could be delays in the hard product refurbishment, delayed Boeing deliveries, weak ground services at Indian airports, which contract agencies hand-lead, vast difference between Vistara catering and AI catering from same vendors, and customer grievance redressal, which, he said, needs to become more personalised and less bot-driven.
Martin said India, as a market, is not new to mergers and acquisitions in the airline industry, starting from the merger of NEPC Airlines with Damania Airways Ltd. in 1996, followed by the Jet Airways-Sahara one, the Kingfisher-Deccan Aviation merger, and the 2008 Air India-Indian Airlines merger.
However, he said that unlike other mergers aimed at a larger entity, the Air India-Vistara merger “was basically to clean up the accounting books of Vistara and balance group profits”.
‘Indigo’s worst enemy is itself’
According to Martin, IndiGo is too big to be challenged.
“Indigo’s worst enemy is IndiGo itself. It has this ability to destroy its own product and its own market,” he said. “For example, it has announced a new business-class service. But, in business class, it does not offer blankets or pillows, in-flight entertainment, or hot food—what business-class passengers expect from a service. You are just giving a seat and charging three times more.”
Shantanu Gangakhedkar, senior consultant of aerospace and defence at consulting firm Frost & Sullivan, said that the combined Air India entity will likely focus on the premium market while IndiGo, as a low-cost carrier, focuses on the low-cost segment. So, in the immediate future, it is unlikely that the merger would impact IndiGo’s market share.
He, however, said that Air India will have to streamline Vistara’s operations, including fleet operations, routes, flight schedules, in-flight services, maintenance operations, and staff, among other factors, which will take some time.
However, in the long run, the merger may “slightly aid” in bringing down the price, especially on key domestic routes used by Air India and Indigo, given the increased availability of flights. That, he said, would give consumers increased options to choose airlines based on their requirements.
Martin said that in India today, the choice of low-cost is diminishing. At one time, there was Air Asia, Go Air, SpiceJet and IndiGo. “There is no Air Asia. It merged into Air India Express. There is no Go Air. Spice Jet is virtually on life support. So, India is largely becoming one low-cost (IndiGo) and one full-service (Air India) airline market, and that is most worrying”.
(Edited by Madhurita Goswami)
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