Experts say that merging Air India and Vistara, both owned by the Tata Group in India, is a wise decision. However, will it be able to take on IndiGo?
The merged airline will have an almost 18% market share. This is the main challenge. IndiGo, India’s third largest domestic airline market, has a market share of over 57%. Analysts believe it will be difficult for the merged airline to overcome this dominance.
Vistara is a joint venture by Tata Group, Singapore Airlines and Singapore Airlines. It will invest $250m for a 25.1% stake after the merger.
Tata Group purchased the debt-ridden Air India from the government for $2.2b, (PS1.8b), in 2021. The airline was once an emblem of Indian national pride. But, it was destroyed by the rise of low-cost, private airlines in the 2000s. Air India started to lose money as India’s air transport sector became more competitive. To stay afloat, it relied heavily on taxpayer-funded bailouts.
Now, the airline is looking to compete with the same rivals.
Jitender Bhargava (ex-executive director, Air India) says that Tatas’ decision of merging the two airlines is sound and timely.
According to government estimates, India’s civil aviation market is valued at around $900mn or PS738mn. It is projected to grow to more than $4b by 2025. While there are opportunities in this growing market, it will be difficult for IndiGo to open its doors.
“Even getting into 2% IndiGo’s market share requires a lot more aggressive market strategies,” Mr Bhargava explains.
India has a long history in unsuccessful airline mergers. These include Jet Airways-Air Sahara, Kingfisher Airlines and Air Deccan. The reasons for this are ranging from high deal value to excessive operational losses.
However, experts remain cautiously optimistic about Vistara or Air India.
Tata also controls AirAsia India. Together, these three airlines hold a market share exceeding 23%. Singapore Airlines has the international power and funds to invest in the entity.
Air India, although it is now a long-established carrier, still enjoys its benefits, such as the prime time slots that it holds across both domestic and international airports. Air India, which now has more than 200 aircraft, will become the country’s largest international carrier.
Ameya, an aviation expert, says that the Tatas should merge because it will put a “clear emphasis on one brand” for their group.
Air India’s reputation will need to be restored, not just for financial gain. Experts say that this is where the Tatas brand value will come in handy.
Smaller low-cost carriers, such as SpiceJet or Go First, will face significant challenges due to this deal. They may even be forced to the margins.
Mr Joshi claims that there will be greater pressure, but less chance for them to grow.
He states that “the possibilities of dominance are now very limited for both of them” and that they will need huge capital investments.