Experts believe that the merger of Vistara and Air India – both owned by Indian conglomerate Tata Group — is a smart decision. But, can it take on IndiGo, the domestic market leader?
This is the biggest challenge facing the merged airline which will hold a market share close to 18%. IndiGo is India’s largest domestic airline market, with a share greater than 57%. Analysts say it will be hard to challenge.
Vistara, a joint venture of Tata Group (Singapore Airlines) and Vistara, will invest $250 million to acquire a 25.1% share in the combined entity.
Tata Group purchased debt-ridden Air India, formerly India’s national airline, from the government in 2021 for $2.2b (PS1.8b). The airline was once a national symbol. However, the rise in low-cost private carriers in the 2000s led to its demise. Air India suffered heavy losses as India’s aviation industry became more competitive. It relied on taxpayer-funded bailouts in order to stay afloat.
The airline has been restructured and is now ready to face its rivals again.
Jitender Bhargava is an ex-executive director of Air India. He believes that Tatas’ decision in merging the two airlines was a sound and timely one.
According to estimates by government, India’s civil aviation market worth approximately $900mn (PS738mn), and it is expected to reach over $4b in 2025. There is potential in India’s growing market but it will be difficult to break into IndiGo’s grip.
“Even if IndiGo has 2% market share, it will require aggressive market strategies,” Mr Bhargava says.
India has a long history with failed airline mergers, from Jet Airways-Air Sahara and Kingfisher Airlines–Air Deccan. This is due to factors ranging from high deal values to huge operational losses.
Experts are cautiously optimistic about Vistara and Air India.
The Tata group controls AirAsia India, along with these two airlines. Together, they have a market share greater than 23%. The international influence of Singapore Airlines is also evident, as well as the funds that it will invest in the entity.
Air India is well past its prime times slots, but it still has many advantages. Air India will be the country’s second-largest domestic carrier, and it will also become the country’s most important international carrier. It currently has over 200 aircraft.
Ameya Joshi, an aviation expert, believes that the Tatas merger is sensible as it will allow for a clear focus on one brand.
The challenge is not only to make financial gains but to also restore Air India’s damaged reputation. Experts believe that the Tatas’ brand will be a big help in this regard.
This deal could also be a challenge for smaller low-cost carriers like SpiceJet and Go First, which may be further pushed to the margins.
According to Mr Joshi, there will be more pressure and fewer opportunities for them grow.
He says that the chances of dominance for either of them are very slim and will require massive capital investments.