Spoiling for a Fight

Experts feel that an aligning of Vistara and Air India’s operations will help unleash significant opportunities for the merged entity in the Indian market

A FEW weeks ago, responding to a Business Today query on a likely merger with Air India, a Vistara spokesperson had said it would continue focussing on organic growth until told otherwise by its parent organisations. The full-service carrier (FSC) is a 49:51 joint venture of Singapore Airlines and Tata Sons. On October 13, Singapore Airlines said in a release that it was in “confidential discussions” with the Tata group concerning the securities of Vistara and Air India, including a “potential integration” of the two airlines.

Terming the announcement as being commensurate with expectations, industry experts say that an alignment of operations will unleash significant opportunities by helping carve out a niche for the merged entity in the highly competitive Indian aviation market. “Air India can offer significant upside to Vistara in the international geographies in terms of access to premium ground slots. It provides them [Air India] with a good opportunity for an image makeover to build a customer-centric airline,” says Jagannarayan Padmanabhan, Director & Practice

Leader for Transport & Logistics at CRISIL Infrastructure Advisory.

But a merger between the two is not going to be easy. “Vistara has developed a credible, high-quality domestic airline, while Air India’s domestic operations have very little going for it. Although a merger makes absolute sense, unfortunately, it also means that eventually, the Vistara brand and Air Operator’s Permit will have to be retired,” says an industry insider who declined to be named. “The lead for setting and managing the product and domestic operations should, therefore, be given to Vistara, so that their processes take precedence in setting Air India’s domestic operations right.” At the same time, the Air India management would need to pay considerable attention to the absorption of Vistara staff to make the process as less painful as possible.

In April, Air India also proposed to acquire the remaining stake in AirAsia India. Tata Sons currently holds 83.67 per cent in the low-cost carrier, with Malaysia’s AirAsia Investment holding the balance stake. Thus, an integration of all Tata group airlines under the Air India brand will create an entity with nearly 200 aircraft and more than 800 domestic and international departures. This would make it the country’s second-largest airline after market leader IndiGo. Air India is also expected to announce one of the largest aircraft orders in recent times which would lead to an almost threefold increase in its fleet size, that will push up its market share. But market share in aviation does not translate to pricing power or profitability. “In the domestic market, market leader IndiGo continues to evolve. In the international market new airlines are targeting India while existing players are upgrading their product and offerings,” says Satyendra Pandey, Managing Partner at the aviation advisory AT-TV.

But what is certain is that the emergence of a duopoly in the Indian skies will get fast-tracked in the months ahead.

An integration of all Tata group airlines under the Air India brand will create an entity with 200 aircraft