Air India-Vistara merger planned by 2024 amid aviation industry challenges

The Tata Group and Singapore Airlines (SIA) have a tough challenge ahead as they go about merging Air India and Vistara, with SIA also investing Rs 20,585 million in Air India as part of the transaction. While the merger has been much anticipated, given that it will release a huge potential by establishing the combined company's niche in the crowded Indian aviation market, industry watchers feel that the merger is not going to be easy.

Philip Goh, Regional Vice President for Asia Pacific of the International Air Transport Association (IATA) was earlier quoted as saying that while challenges around profitability were immense for both carriers, a combined Air India could become a very powerful player in the Indian international market only if the Tatas formed their strategy correctly. The present form of Air India was the result of its merger with India Airlines in 2007.

Compared to Air India's domestic operations, which have been lacking due to legacy issues with the Tata Group only recently stepping in, Vistara has been developed into a credible, high-quality domestic airline. A merger, observers feel also means that the brand Vistara will have to be retired and its Air Operators Permit will be relinquished.  

Under a deal announced by the Tata Group on Tuesday, the consolidation of its airlines would make Air India the country's India’s leading domestic and international carrier with a combined fleet of 218 aircraft, making it India’s largest international carrier and second largest domestic carrier. Vistara shall be merged with Air India post receipt of requisite approvals. As part of the merger transaction, SIA shall also invest Rs 2,059 crore in Air India.  Post the consolidation, SIA shall hold 25.1% shareholding in Air India.

Once this happens, it will overtake the current market leader, IndiGo. It is also anticipated that Air India will announce one of the largest aircraft orders in recent times, which would result in a nearly threefold increase in the size of its fleet, thereby increasing its market share. However, a large market share in the aviation industry does not necessarily equate to strong pricing or high profits. Experts noted that IndiGo, the market leader in the domestic market, is also constantly evolving. As India becomes an increasingly attractive market for international airlines, both established and upstart carriers have started vying to establish a foothold.

"As part of the transformation, Air India is focusing on growing both its network and fleet, revamping its customer proposition, and enhancing safety, reliability, and on-time performance. We are excited about the opportunity of creating a strong Air India which would offer both full-service and low-cost service across domestic and international routes.  We would like to thank Singapore Airlines for their continued partnership,” N Chandrasekaran, Chairman of Tata Sons said in a statement.

The Centre for Asia Pacific Aviation (CAPA) India sharing its perspective on the merger said that competitive dynamics in Indian skies were moving towards a two-pillar system around the Air India Group and Indigo. The changes in market dynamics will redraw market and consumer power in the international arena back to Indian carriers which were historically dominated by foreign carriers.  

Since January of this year, when the government sold Air India and its budget international subsidiary Air India Express, Tata Sons has been working to merge all of its airline operations, including its partnership with AirAsia Berhad in AirAsia India, into a single entity. The merger between AirAsia India and Air India was approved by India's Competition Commission earlier this year. Tata Sons currently owns 83.67 percent of AirAsia India and is in the process of buying out AirAsia Berhad's remaining shares.