Air India-Vistara mega merger: How consolidation could lead to better cost control | The Financial Express

Air India-Vistara mega merger: How consolidation could lead to better cost control

“Operationally, the airline will see consolidation of stations, routes and staff leading to better economics,” Ameya Joshi, an independent analyst, said.

Air India-Vistara mega merger: How consolidation could lead to better cost control
At 0.06 international seats per capita and 0.13 domestic seats per capita, India provides unchallenged headroom for growth among the large markets in the world, something that Tata Group is keen on tapping into.

The market consolidation through the merger of Air India and Vistara is set to create the biggest growth opportunity for the Tata Group in India, which is the third biggest market in the world but also has the lowest number of seats per capita among the world’s 20 largest markets.

At 0.06 international seats per capita and 0.13 domestic seats per capita, India provides unchallenged headroom for growth among the large markets in the world, something that Tata Group is keen on tapping into.

After the full integration of Vistara and AirAsia India, expected to happen before March 2024, Air India will be the only Indian carrier group to operate both full-service and low-cost passenger services. The group’s current fleet size of 271 aircraft — including Air India, Vistara, AirAsia India and Air India Express — is close to market leader IndiGo’s fleet of 280.

Since Vistara and Air India fly to common international and domestic destinations, there won’t be any increase in the number of serviced destinations after the merger. However, it will lead to an enlarged pool of airports slots, faster turnaround of aircraft and better economies of scale, believe market watchers.

Neither of the two airlines has made profits and a single full-service carrier will allow the management to have a stronger balance sheet with tighter control on costs. IndiGo is not expected to start direct flights to western Europe or the US from India before 2024-end, giving Air India and unrivalled domination on international routes.

“Operationally, the airline will see consolidation of stations, routes and staff leading to better economics,” Ameya Joshi, an independent analyst, said.

Also Read: Vistara to merge with Air India: Singapore Airlines

The merger process of Vistara and Air India will involve a series of steps and clearances. This includes approvals from the Directorate General of Civil Aviation, Reserve Bank of India, ministry of civil aviation, Competition Commission of India and the National Company Law Tribunal.

Manvi Hooda, practice lead, consulting and research, CAPA India, said “The two most critical and difficult issues for Tatas are going to be the integration of organisation culture and operations. Past airline mergers such as Air Deccan and Kingfisher, Air Sahara and Jet Airways, Indian Airlines and Air India have struggled to declare the intended results post the merger due to these issues. Tatas will require a clearly defined strategy and high level of expertise to successfully execute this gigantic turnaround and merger.”

Both Vistara and Air India have agreed that in the event of non-fulfilment of the conditions and if the merger process is not completed by October 31, 2024, the implementation agreement will terminate and the merger will not proceed.

Other steps include assimilation of in-cabin staff and standardisation of service since both airlines have dissimilar service standards. In just seven years, Vistara emerged as the top choice of flyers choosing a full-service, while Air India has struggled to maintain its service standards.

“The challenges are around integration of staff and service standards as Vistara is more premium than Air India and has different class of service like premium economy,” Joshi added.

The merger process will not have any immediate operational impact on either of airlines for now. Vistara, for instance, is going ahead with its planned fleet expansion with the addition of 16 aircraft by the end of 2023, taking the tally to 70. Air India is adding flights by inducting leased long haul and ultra-long-haul planes.

“Turning around the loss-making airlines into a profitable one will not be easy, but the combination of Tata Sons and Singapore Airlines has the ability to achieve this. Air India has already started reporting performance improvements. Given the strength at the group level and at the partner level with Singapore Airlines — digital, technological, consumer platforms, supply chain & logistics and more importantly the strong customer service business like the Taj Hotels — these strengths will be available to Air India management to create a structurally strong business model,” Hooda added.

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First published on: 01-12-2022 at 03:15 IST