Air India Vistara Merger: In India, the Tata group has always been held in high esteem. Its visionary leaders have shaped the progress of the nation right from the time of India’s freedom struggle. This reputed group reflects the community-centric vision of its Founder, Jamsetji Tata, the pursuit of excellence by JRD Tata, and the pioneering spirit of Ratan Tata.
It is pertinent to note that it was the Tatas who led the foundation of India’s premium space research organisation, ISRO. This group has virtually personified the Indian version of Midas touch. The group has made its eminent presence felt in the Hotelier, Consultancy, mobile and host of other businesses.
Apparently, new developments suggest that the group is going to give Indigo a run for its money in the aviation sector.
Indigo’s complete dominance in the Aviation sector
In 2019, IndiGo became the leader in both the domestic and international markets. It capitalised on the failure of the Jet Airways, whose operations were temporarily halted in April 2019. Evidently, Jet Airways’ continual failure resulted in the loss of all international flying rights and domestic airport slots. These were then allotted to other Indian carriers so that they have more resources at their avenue and reduce the fare for the consumers.
IndiGo added the most number of international flights, which were previously on Jet’s right. After the failure of Jet Airways’, IndiGo expanded its operations and established a market dominance that it has maintained to this day. At that time, IndiGo added over 330 Airbus – A320s and A321s. With this giant leap, it surpassed Air India in the International circuit.
Apparently, Air India was going through a financial crunch, thanks to poor financial planning. The AI failed to fill the vacuum that was created after the temporary exit of the Jet Airways from the aviation sector.
The Indigo Airlines was the only one to witness a sharp rise after the hiatus of covid pandemic. As per June data, IndiGo enjoyed a market share of 56.9 per cent. Indigo’s passenger ticket revenues increased by 38.4% in the March 2022 quarter, while ancillary income increased by 18.8% compared to the same time previous year.
IndiGo conducted nearly 1,577 daily flights during the March quarter. India’s largest airline provided service to more than 73 domestic destinations and 15 international destinations during the same time.
Tata stabilised the business in the turbulent times for Aviation sector
At the time when Jet Airways’ came to a grinding halt and AI struggled financially and failed to expand, the Tata group-led Vistara brought stability to the aviation sector. As per DGCA data, Vistara is the second largest airline by domestic market share of 10.4%.
Notably, the Vistara airline is a joint venture of Tata Sons Private Limited and Singapore Airlines Limited (SIA). Tata Sons controls 51% of the joint venture, while SIA owns 49%.
Vistara began operations on January 9, 2015, with a flight from Delhi to Mumbai. It has swiftly grown its presence in terms of network and services in a short period of time. Vistara Airlines serves 39 destinations both within and outside of India.
It operates over 220 flights a day with a fleet of 50 aircraft including 39 Airbus A320, 5 Boeing 737-800NG, 4 Airbus A321neo and 2 Boeing B787-9 Dreamliner. In India, currently only 7 per cent of the 1.3 billion population travel by air.
Tata takes a giant leap by re-acquiring Air India
On 8th of September, last year, Air India came back to its initial owner, that is, the Tata group. The loss-making national carrier Air India was bagged by Tata in a Rs 18,000 crore bid. The privatisation of the national carrier was a major symbolic landmark. In the Rs 18,000-crore bid, the Tata Sons cleared over Rs 15,300 crore debt of Air India while the rest of the debt was borne by the Government of India.
It is important to note that Air India was founded in 1932 by the Tata group. It started as Tata Airlines, later renamed as Air India, and was nationalised in 1953.
With the re-acquisition of Air India, Tata group hoped to take a giant leap in the aviation sector. It can now afford to add luxury to complement the two airline ventures, Vistara and Air India. Notably, both the airlines are complementary to each other. Vistara excels is in the domestic segment, Air India, on the other hand, Air India commands the international market.
Vistara’s probable merger with Air India
Reportedly, the Tata Group and Singapore International Airlines (SIA) are in talks to merge the businesses of Air India and Vistara. As per media reports, the joint venture is being discussed with the aim to optimise resources and compete together against the country’s top airline, IndiGo. If the merger goes through as planned, SIA may retain a minority stake of up to 25% to the tune of Rs 5,000 to Rs 10,000 crore.
Earlier, the appointments in Air India too matched the same reports of a possible merger. Air India appointed Campbell Wilson as the new Chief Executive of Air India. Wilson had a long association with SIA, having previously served as CEO of Scoot, a wholly owned subsidiary of Singapore Airlines. An official told media that as per a recent internal exercise, the combined valuation of Air India and Vistara might be at least Rs 30,000 crore.
Vistara and Air India will benefit from economies of scale if the two airlines join. It will also help Singapore Airlines gain access to dozens of new worldwide slots. Furthermore, the Tatas’ sons will be able to consolidate their aviation industry and enhance their bank sheets.
However, the merger might take more than a year to finalise the nitty gritties. Even after the merger, both the airlines might maintain their own brand, but in the long term only one may sustain the aviation business. Currently, Air India holds a domestic market share of 8.5 percent. It wants to increase its share to 30 percent in the next five years.
Additionally, with the possible merger, Tata group (167 fleets – 113 of Air India and 54 of Vistara) will demonstrate its aggressive push to replicate its success in the aviation sector and wrestle past IndiGo (276 fleets). The following years will be a solid indicator of a thriving aviation sector, hinting at India’s expanding economic might.
The new developments hint that India is eyeing at a great time in the aviation sector. New players like Akasa Airs are making a grand entry, while revamped Jet Airways wants to retain its former glory. Moreover, established players like IndiGo, Air India, Vistara and Spice Jet, among others, offer more choices to passengers. The multiple players will compete for market domination and, in turn, have to offer economical flights to the consumer with improved services to them.
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