In the ever-evolving skies of the aviation industry, a monumental event has captured the attention of travelers and industry enthusiasts alike. And that is Air India and Vistara merger! It’s a union of two aviation powerhouses, each possessing its distinct identity and strengths, converging to reshape the story of Indian aviation.
But why is Vistara, a relatively newer player, being woven into the fabric of the legendary Air India?
Join us on an exciting journey as we unravel the intricate threads of this merger. We will explore the strategic motivations and potential benefits of the Air India & Vistara merger. Also, we will decode the promise it holds for the future of air travel in India.
On September 1st, the Competition Commission of India (CCI) granted approval for a legendary merger. The integration of Air India, owned by the Tata group, with its sibling airline, Vistara! However, this approval was contingent upon both carriers adhering to certain voluntary commitments they had made.
This development came against a backdrop of growing concerns within the aviation industry. And what’s that? You may wonder. It was regarding the emergence of a duopoly. The merged entity of Air India-Vistara and IndiGo is projected to exert control major share of the domestic market.
Can you guess the percentage of their combined market share?
More than 75% share of the domestic market. Yes, three-fourths of the market share! And the concerning part is- the impact of the duopoly on the new and small players. This situation has put smaller competitors like SpiceJet, Akasa Airlines, and Go First in a challenging position.
(A.1) Tata Group’s Ambition
The Tata Group announced the consolidation of its airline holdings last year, setting the stage for Air India and Vistara merger. This strategic move positions Air India as India’s premier domestic and international carrier, boasting a combined fleet of 218 aircraft. Thus, it will become the country’s largest international airline and the second-largest in the domestic sector.
(A.2) Expected outcomes of Air India and Vistara merger
The CCI communicated its decision to greenlight the Air India and Vistara merger through a post on X (formerly Twitter). Concurrently, it permitted Singapore Airlines to acquire a 25.1% stake in the erstwhile national carrier.
With the CCI’s approval, Air India has successfully navigated a significant regulatory hurdle on its path to becoming a conglomerate encompassing four airlines. It will include AirAsia India and Air India Express, in addition to Vistara.
Vistara is slated to become an integral part of Air India, fortifying the airline’s full-service business segment. Furthermore, it is anticipated that the newly amalgamated airline will operate under the Air India brand and nomenclature.
So, what factors precipitated this merger? Delve into the following sections to unveil the intricacies and behind-the-scenes developments that led to Air India and Vistara merger.
(B) Key Players in the Air India and Vistara Merger
First of all, let’s look into the key players of the merger-
(B.1) Tata Group
The Tata Group is the parent company of the siblings Air India and Vistara. Established by Jamsetji Tata in 1868, the Tata group is a global conglomerate based in India, comprising 30 companies spanning ten sectors. Operating across more than 100 countries on six continents, their mission centers on “improving the quality of life for communities globally through long-term stakeholder value creation founded on Leadership with Trust.”
Tata Sons, the primary investment holding and promoter of Tata Companies, holds 66% of its equity share capital through philanthropic trusts dedicated to education, healthcare, livelihoods, and cultural endeavors.
In the fiscal year 2021-22, the collective revenue of Tata companies reached US $128 billion (INR 9.6 trillion), employing over 935,000 individuals.
Each Tata enterprise operates independently under its board of directors’ guidance. As of March 31, 2022, there are 29 publicly listed Tata companies with a combined market capitalization of $311 billion (INR 23.6 trillion).
Notable Tata Group Companies include-
- Tata Consultancy Services
- Tata Motors
- Tata Steel
- Tata Chemicals
- Tata Consumer Products
- Tata Capital
- Tata Power
- Tata Communications
- Tata Electronics
- Air India
- Tata Digital.
(B.2) Air India
Founded by the esteemed JRD Tata, Air India has played a pioneering role in India’s aviation industry. Its inaugural flight took to the skies on October 15, 1932, marking the beginning of a remarkable journey. Over the years, Air India has expanded its reach, evolving from a primarily domestic carrier into a prominent international airline, serving destinations in the USA, Canada, UK, Europe, Far East, Southeast Asia, Australia, and the Gulf. Notably, Air India is a valued member of the renowned Star Alliance, the world’s largest global airline consortium.
Air India currently operates a fleet of 116 aircraft. Also, the additional 470 planes are on order and are scheduled for delivery over the next decade.
In a significant development, after 69 years under government ownership, both Air India and Air India Express rejoined the Tata group in January 2022. Under the leadership of the current management, Air India has embarked on a transformative five-year journey known as Vihaan. AI. This comprehensive roadmap is designed to elevate the airline to world-class status while retaining its quintessentially Indian identity.
(B.3) Vistara (Tata SIA Airlines Limited)
Tata SIA Airlines Limited, operating under the brand name Vistara, represents a joint venture with a 51% stake held by Tata Sons Private Limited and a 49% stake held by Singapore Airlines Limited (SIA). Vistara is the embodiment of Tata’s and SIA’s esteemed traditions of hospitality and exceptional service, combining them to provide India with an unparalleled full-service air travel experience.
The airline officially launched its commercial operations on January 9, 2015, with a mission to establish new benchmarks within India’s aviation sector. Today, Vistara serves a wide array of domestic and international destinations.
Vistara’s fleet consists of 61 aircraft, comprising Airbus A320, Airbus A321neo, Boeing 737-800NG, and Boeing 787-9 Dreamliner aircraft. Over the course of its operations, Vistara has proudly catered to the travel needs of more than 35 million passengers.
Now, Vistara is all over the news due to the upcoming merger with its sister Air India.
(C) What will be the new name of Vistara?
At this point, you may have various inquiries concerning the forthcoming Air India and Vistara merger. Allow me to address them comprehensively!
Is Tata shutting down Vistara? Is the Vistara brand going to be discontinued with the Air India merger? Yes. Unfortunately, after the merger, you won’t see or hear the term “Vistara” anymore. Will Tata rebrand Air India? No, the name “Air India” won’t be changed.
So, what will be the new name of Vistara or the merged entity? The newly established airline is anticipated to operate using the branding and name of “Air India.” This means that it will continue to carry the well-known and established identity of Air India. And that too including its logo, livery, and overall brand image.
As it moves forward as a unified entity resulting from the merger, the name “Air India” will still prevail. This strategic decision aims to leverage the recognition and reputation associated with the Air India brand in the aviation industry. You will find detailed information in the next section.
(D) Key Reasons: Why Vistara is being Merged with Air India?
The ambitious Air India and Vistara merger is driven by Tata Group’s strategic consolidation of its aviation ventures. Under this approach, Tata Group, the parent company of Vistara, is orchestrating the integration and unification of these two airlines into a singular entity. This strategic maneuver is not only aimed at reshaping the group’s aviation portfolio but also holds several key reasons.
Let’s delve into the reasons one by one-
(D.1) Strategic Consolidation of Tata Group’s aviation businesses
The Tata Group, a prominent conglomerate in India, is in the process of repositioning Air India, the national carrier, following its acquisition. They aim to consolidate their airline brands, which currently include Air India, Air Asia, and Vistara, into a unified and strategic structure.
(D.1.1) The Current Landscape
Tata Group has three aviation assets. Before delving into the integration plan, it’s essential to understand the existing state of Tata’s aviation assets-
· Air India: The flagship airline, has a mixed reputation in terms of service and efficiency.
· Air Asia: A low-cost carrier, that caters to budget-conscious travelers.
· Vistara: Positioned as a premium airline, offers a higher level of service.
(D.1.2) Creating a Unified Premium Airline
Tata’s overarching goal is to merge Air India and Vistara into a single premium airline brand. This strategy aims to avoid managing three distinct names and eliminate the competition between two premium brands.
(D.1.3) The Selection of the brand name “Air India.”
Why the name “Air India” is selected for the merged entity? You came across this question in the previous section. Right?
One key consideration for Tata is that Vistara already enjoys a premium brand perception and a dedicated customer base. Converting Vistara into a low-cost carrier would risk diluting its premium image and potentially alienating loyal customers.
Therefore, instead of Vistara, Tata selected the name Air India for the merged entity. The prioritization of the Air India Brand over Vistara stems from their ambition to create a high-performing global airline. They recognize that Air India’s established international recognition can accelerate the process of building trust, both domestically and internationally.
Note: Tata also owns two low-cost airlines, AirAsia India and Air India Express. The former, recently renamed AIX Connect, is set to merge with Air India Express. This merger is expected to be smoother than the Air India and Vistara integration.
(D.2) Operational Synergies
One of the primary benefits of this consolidation is the realization of operational synergies. By bringing Air India and Vistara under one umbrella, Tata Group can streamline various aspects of their operations. This includes coordinating schedules, optimizing routes, and harmonizing maintenance and logistics procedures. We expect that such operational synergies will lead to significant cost savings and efficiency improvements.
(D.3) Resource Optimization
The merger also presents an opportunity for Tata Group to optimize its resources effectively. By pooling together, the assets, manpower, and infrastructure of both airlines, Tata Group can rationalize its investments and resources. This can lead to better utilization of aircraft, airport facilities, and human resources.
Well, the factor of “Resource Optimization of Human Resources” boils down to an obvious question. What will happen to the Vistara employees after the merger? Although it belongs to the same parent company. But still, a change of ownership instigates fear in the minds of employees of the merging entity. We will discuss it in detail in the upcoming sections.
(D.4) Enhanced Efficiency in Aviation
Furthermore, the consolidation aims to enhance overall efficiency in the aviation sector. As the merged entity operates with a more streamlined structure, it can respond more swiftly to market dynamics and changing customer preferences. The reduction of duplicative processes and administrative overhead is expected to make the operations leaner and more agile, facilitating better service delivery and profitability.
(D.5) To thrive in a competitive environment
The Air India and Vistara merger is a strategic move by Tata Group to consolidate its aviation businesses. It seeks to unlock operational synergies, optimize resources, and boost efficiency within the aviation sector. Ultimately, there will be an enhancement of the overall competitiveness of the combined entity.
(D.6) Beating the market leader- Indigo
One of the foremost objectives of the Air India and Vistara merger is to dethrone the current market leader, IndiGo. This strategic move is driven by the aspiration to establish a formidable aviation powerhouse capable of capturing a more significant share of India’s burgeoning domestic flyers segment. The merger leverages the complementary strengths of Vistara and Air India to create a unified entity poised to challenge rival market players, with a particular focus on IndiGo, SpiceJet, GoAir, etc.
(D.7) To attract investments and commitments of the stakeholders
In order to secure investments and garner support from stakeholders, the merger encompasses an infusion of Rs 2,059 crore by Singapore Airlines, the predominant stakeholder in Vistara, into Air India. This financial commitment underscores the dedication of all involved stakeholders in fortifying the airline’s position, fostering its competitiveness, and solidifying its presence in the Indian aviation landscape.
In essence, the integration of Vistara with Air India signifies a calculated strategic move towards establishing a preeminent player in the Indian aviation sector.
(D.8) Formulation of a Robust Unified Fleet
The integration of Vistara and Air India is going to create a formidable presence in the Indian aviation landscape. This newly merged airline will operate with an impressive combined fleet of nearly 140 aircraft. It will significantly expand its capabilities and reach.
(D.9) Enhanced Domestic and International Network
With this augmented fleet, the merged airline will provide extensive coverage across a wide array of domestic and international routes. This expanded network solidifies its competitive edge, enabling it to offer a broader range of travel options to passengers. The merger effectively strengthens its ability to stand strong against rival competitors in the Indian aviation industry.
(E) Why Tata is not continuing both brands?
Tata Group’s decision to merge Air India and Vistara reflects several challenges and considerations. Those challenges make it difficult to continue Air India and Vistara as separate entities. Tata is not continuing both brands (Air India and Vistara) due to the following hurdles
(E.1) Reduced Operational Efficiency
Managing multiple airline brands requires significant resources and can lead to operational inefficiencies. Each brand has its own systems, processes, and management structures, which are costly and complex to maintain. Consolidating under a single brand allows for streamlining operations and achieving economies of scale.
(E.2) Resource Fragmentation
Managing multiple airline brands means allocating resources, including aircraft, staff, and marketing budgets, to each brand. This can lead to resource fragmentation and may not fully leverage the combined strength of the group.
(E.3) Fighting the Competitive Landscape
The Indian aviation industry is highly competitive, with several strong players vying for market share. To compete effectively, Tata Group may find it more advantageous to consolidate its resources and focus on building a single, strong brand rather than spreading its efforts across multiple brands.
(E.4) Cost Reduction
Merging brands can lead to cost reductions through synergies in operations, marketing, and administration. These cost savings can improve profitability and competitiveness.
For Tata Group, consolidating under a single brand is a strategic move to overcome these challenges. Thus, Tata Group will strengthen its position in the competitive Indian aviation industry.
(F) What will happen to Vistara employees after the merger?
You must be concerned about the Air India and Vistara merger’s impact on staff and job security. Well, the reasons are quite evident.
When it comes to change of ownership, we are well aware of the dire consequences on the fate of employees. For instance, take the case of Twitter (X).
Will Air India fire the Vistara employees too? Fortunately, the answer is “No.” The Air India and Vistara merger will not lay off the existing employees. Instead, they will go through the fitment process and will get a meaningful role in the merged entity.
You can say that the staff will undergo numerous aptitude and other tests to get more meaningful roles.
That sounds pretty good! Isn’t it?
At least, this process is better than downsizing the employees.
(F.1) Fortunate Fate of Vistara’s Employees
Vistara is diligently preparing for its upcoming merger with Air India. Key initiatives include aptitude tests to determine staff suitability within the merged entity, fostering effective fitment. Tata Group Airlines has established a unified salary structure and pilot seniority list with town hall meetings addressing integration concerns.
CEO Vinod Kannan announced the commencement of fitment for the remaining staff, aiming for meaningful roles within the integrated organization, aided by Mercer. Vistara, with around 5,500 employees, is merging with Air India’s 16,500-strong workforce.
Vistara has initiated a culture survey to gather staff insights, shaping the desired culture within the integrated entity. Additionally, Tata Group Airlines has formed a common pilot seniority list. Upon Competition Commission of India (CCI) approval, Vistara pilots anticipate transitioning to operate Airbus A350 and Boeing 777 aircraft, a pivotal merger development.
(G) Valuation of the combined Entity (Air India and Vistara merger)
The financial valuation of the merged entity formed by Vistara and Air India is currently undisclosed. Why? You may ask. Due to non-disclosure agreements and the sensitive nature of the transaction. Nevertheless, experts believe that the valuation is likely to be substantial, given several factors.
Air India possesses extensive infrastructure and a large fleet of aircraft. Additionally, the planned investments from Tata Group and Singapore Airlines further indicate the significance of this merger in terms of financial value. Also, it will potentially impact on the aviation industry. While the exact valuation remains undisclosed, the merger is expected to be a considerable and strategically important business deal.
(H) Future Prospects of Air India and Vistara Merger
Post-merger, Singapore Airlines will hold a substantial 25.1% stake in the freshly formed aviation entity. This significant investment amounts to $250 million, signifying the confidence of Singapore Airlines in the potential success of this merger. Consequently, you will see its impact on the Indian aviation market.
The merger is poised to enhance SIA’s presence within the Indian aviation landscape, reinforcing its multi-hub strategy and enabling continued direct participation in the country’s substantial and swiftly expanding aviation market.
Furthermore, the aviation research and advisory firm i.e., Centre for Asia Pacific Aviation (CAPA) India had previously asserted a breakthrough announcement. It said that the merger would result in a transformation of market dynamics and consumer influence on the global stage. Historically, foreign carriers dominated the global aviation industry. Now, it’s time for India to dominate the world’s aviation market.
India’s Ascent on Global Aviation Dominance
As a result of this merger, CAPA India foresees the transformation of Air India into a prominent global network carrier over the next six years. Eventually, this evolution will be marked by substantial growth in terms of size, network reach, and service quality. This transformation could potentially lead to the airline commanding a market share of up to 50 percent in international air traffic!