Skyward Consolidation

In a move that reshapes the competitive dynamics of the Indian aviation sector, Tata Group’s Air India (AI) has completed a bumpy merger with Vistara, first announced in 2022. The deal brings together India’s largest international carrier and the high-flying Vistara - once a premium brand backed by Singapore Airlines. The new Air India will now operate over 5,600 weekly flights, connect more than 90 destinations globally, and serve upwards of 120,000 passengers daily. At a time when India’s aviation industry is facing multiple headwinds, this merger is both a strategic consolidation and a test of the Tata Group’s ambitions to build a global aviation powerhouse with an Indian heart.

The Indian aviation sector is arguably the world’s most dynamic, with demand for air travel surging as the country’s middle class expands and business travel picks up. Yet, despite this robust growth, the industry is fraught with challenges that have taken down or forced mergers between some of the country’s most iconic airlines. Kingfisher Airlines, Jet Airways and Air Deccan are just a few of the once-prominent players that faltered under the weight of mounting debts, high operational costs and fierce competition. Even now, Air India itself has struggled to break even, remaining a loss-making venture since its privatization in 2021.

The AI-Vistara merger is the Tata Group’s response to this volatile environment, creating two distinct entities under its wing: a full-service carrier in AI and a low-cost arm in Air India Express. The move seeks to consolidate Tata’s foothold in both the premium and budget segments, an approach aimed at strengthening its competitive edge against the market leader IndiGo, which has dominated with a 60% market share.

The merger holds particular significance in the context of India’s wider aviation infrastructure woes. High fuel prices, inadequate airports and operational inefficiencies have long plagued Indian carriers, contributing to the industry’s financial fragility. Aviation Turbine Fuel (ATF) alone accounts for 40-50% of airline costs, with high taxes further compounding the issue. Moreover, India’s infrastructure, especially its airports and air traffic control systems, are often overstretched, leading to delays, cancellations and customer dissatisfaction. Air India’s own reputation has been tarnished by complaints about poor service, lost luggage, and unreliable flights. In fact, it ranked worst globally for lost baggage in late 2023.

The task ahead for Tata Group is Herculean. Not only must it modernize Air India, mired in decades of bureaucratic inefficiency, but must also ensure that Vistara’s hard-earned reputation for quality service - its flatbed seats, premium economy cabin, and overall superior flying experience - is not lost in the merger. With over 470 aircraft on order, Air India’s combined fleet risks becoming a burden if growth fails to materialize. The rebranding of Vistara’s fleet with Air India’s ‘AI’ prefix is symbolic of the delicate balancing act at play: how to preserve the best aspects of Vistara while transforming Air India into a world-class carrier.