Air India Secures Number 2 Spot in India Market with Vistara Merger
The wave of post-pandemic airline consolidation is coming to India. Air India and Vistara will merge under a deal between Tata Sons and Singapore Airlines that also secures the latter’s foothold in the rapidly growing aviation market.
The merger, which has been speculated about for months, would create India’s second largest domestic airline under the Air India brand with, for now, 218 aircraft. The carrier would be second to only IndiGo in the domestic market, and the leader internationally. But, importantly for Air India’s business — and other airlines in the market — it would begin the rationalization of the highly fragmented Indian market.
“The enlarged [Air India] will … be able to achieve scale synergies, seamless connectivity on domestic and international routes, as well as optimization of its route network and resource utilization, enabling it to offer more choices and better connectivity for consumers, while creating a champion that can compete effectively internationally,” Singapore Airlines said of the deal in a Singapore Stock Exchange filing on Tuesday.
Singapore Airlines, which owns 49 percent of Vistara, will make a $250 million investment and receive a 25 percent stake in the expanded Air India as part of the deal.
Airlines in consolidated markets, like in the U.S., are consistently more profitable than their peers in more fragmented markets. In addition, this financial performance leads to more capacity growth, and can translate into passenger experience improvements as well. The pandemic has proven a catalyst for further consolidation in markets around the world, from Latin America to Europe and South Korea.
Many have expected consolidation to come to India since the Tata Group took over Air India earlier this year. Tata already owned stakes in AirAsia India and Vistara, making both airlines prime targets for integration into the larger Air India franchise, which also includes Air India Express. Malaysia’s Capital A, which jointly owned AirAsia India with Tata, sold its stake in the budget airline to the Indian conglomerate at the beginning of November. And Singapore Airlines said in October that it was in talks with Tata over a potential Air India deal.
In addition, Tata has hired Singapore Airlines veteran Campbell Wilson to lead Air India. He was most recently CEO of the Singaporean carrier’s budget arm, Scoot, after more than two decades at Singapore Airlines itself.
The new Air India, including budget airlines AirAsia India and Air India Express (expected to be combined in 2023) and now Vistara, had a 23.5 percent share of Indian domestic passengers during the nine months ending in September, according to Indian civil aviation authority DGAC. They had a 23 percent share of international passengers in the second quarter. IndiGo, the country’s largest airline, had a 56 percent domestic and 15 percent international share during the respective periods.
IndiGo executives have, so far, brushed off any concerns over the resurgent Air India. “Whether it’s older airlines or newer airlines, they are all run by very professional veterans of the industry. So far we see no irrational behavior by anyone,” then CEO Ronojoy Dutta said in August. Dutta stepped down as CEO in September and was replaced by former KLM chief Pieter Elbers.
One challenge for Air India will be to maintain Vistara’s high service quality while combining the two airlines. The latter is viewed as offering better service than the former, which for decades struggled under state ownership.
“The merger of Vistara and Air India is an important milestone in our journey to make Air India a truly world-class airline,” Tata Chairman Natarajan Chandrasekaran said. “We are transforming Air India, with the aim of providing great customer experience, every time, for every customer. As part of the transformation, Air India is focusing on growing both its network and fleet, revamping its customer proposition, enhancing safety, reliability, and on-time performance.”
In recent months, Air India has announced deals for additional aircraft and expanded international flight offerings. Earlier in November, the airline unveiled a new daily flight between Mumbai and New York JFK, and plans to resume flights between Delhi and Copenhagen, Milan, and Vienna in early 2023.
The Air India and Vistara merger is expected to close by March 2024 pending regulatory approval.Subscribe Now to Airline Weekly