Tata airline merger to bid farewell to Vistara brand

One of the biggest airline mergers is about to happen as the Tata group consolidates all its aviation interests under a single brand banner. It had originally intrigued a lot of observers as to what were the Tatas doing buying Air India, when they already had Vistara and Air Asia under their belt. Now the true picture is gradually emerging. Tatas will gradually consolidate all their airline interests under the Air India Brand. Under the agreement with the government, the Tata group is committed to use the existing brand of Air for a period of time, before it can plan any changes to the name. But the Tatas are now laying out the plan.

What now emerges is that the Tata group will now have one umbrella brand for their aviation business, which is the Air India Brand. Under the Air India umbrella, there would be a full service offering and there will also be a low cost offering. The full service offering will be a combination of the erstwhile Air India and the existing operations of Vistara. The low cost operation will be a combination of the Air India Express franchise and the Air Asia franchise, which is also a low cost airline. So, that is how the aviation business will look like.

What about ownership? That remains the moot issue. In the case of Air India, that is 100% owned by the Tatas, so there is not much of a dispute. Even in Air Asia, there is not much of a dispute. Air Asia Malaysia has just about 13% stake in the low cost joint venture and they were anyways happy to exit the competitive Indian aviation market and sell the residual stake to the Tatas. The big issue is Vistara, which is a joint venture between Tatas and Singapore Airlines. Tatas and SIA have been in advanced discussions on this subject and neither is willing to comment on what the new structure will be. We have to wait for now.

According to reports, the Tata group is planning to scrap the Vistara brand totally. Now that could have a number of implications. For instance, Singapore Airlines may look for another partner and continue to operate the brand, although it is hard to fathom who would want to enter the aviation space at this juncture. The other possibility is that the decision already has the buy-in of Singapore Airlines and the deal could be that the Tatas and SIA expand their relationship by giving SIA a stake in the new combined venture which includes Air India. That is not too clear and it would be a good boost to aviation in India.

All that Singapore Airline has disclosed till date is that there were in confidential talks with the Tata group, but no details were immediately available. However, there has to be a decision soon if the Tata consolidation has to go ahead. It is also possible that Singapore Airlines and Air India may plan a much larger integration of their international operations in India and look to tap the fast growing foreign travel market in India. After all, the merger would give economies of scale as well as better cost management through sharing of common facilities and integration of support services of the group.

There are a number of reasons why the integration and consolidation could be a great idea. The integration of all Tata group airlines under the Air India brand will create an entity having 200 aircraft and having more than 800 domestic and international departures. The combined Tata entity will be the second largest airline in India by a margin with a dominant market share of around 23% to 25%. It is on this base that the Tata group has set itself the ambitious target of boosting its market share to 30% of the enhanced market over the next 4-5 years. Air India is expected to announce placement of one of the largest aircraft orders.

The Tata owned Air India plans to triple its fleet in the next five years. In the next 15 months, the airline plans to induct 5 wide-body Boeing and 25 Airbus narrow-body planes. Currently, Air India has a narrow-body fleet of 70 aircraft; out of which 54 are in service and the remaining 16 aircraft will return to service by early 2023 in a phased and progressive manner. The wide-body fleet stands at 43 aircraft, of which 33 are currently operational. But, the synergies of the merger would obviously be much bigger than the sum of parts.

Read more: Tatas-owned Air India to take full control of AirAsia India. All you need to know