What had been speculated for some time is now official. Air India and Vistara will merge, creating a new powerhouse in India, in theory. There is a lot that can go wrong here, which is why it’s surprising to see Singapore Airlines willing to make a very expensive bet that this works out well.
The merger itself is no surprise. After all, Tata Sons owns 51 percent of Vistara — a full service airline in India — while Singapore Airlines owns the other 49 percent. When Tata Sons took over Air India in the government’s long-planned privatization effort, the expectation was that the two like-minded carriers would come together. Apparently all it took for that to happen was for Singapore to offer a billion or so dollars.
To make this come together, Singapore is investing about $250 million up front. That will convert its stake in Vistara into a 25.1 percent stake in the larger Air India. Then it has committed to putting in an additional $615 million after the merger is done in order to “fund the growth and operations of the enlarged Air India.”
This is a big bet. Sure, India is an enormous market, about to become the most populous country in the world. But Air India has been a long-bloated and failed state carrier along the lines of Alitalia and Aerolineas Argentinas. It remains an international flag carrier for the country, but it has shrunk to near irrelevance domestically. Just take a look at some Cirium data.
Scheduled Indian Domestic Seats by Airline by Month
Data via Cirium
In bright red you see Air India. Air India has looked remarkably consistent in total capacity over time, but that is a huge decline considering how much the total market is growing. Just look at this from a market share perspective.
Scheduled Indian Domestic Seat Share by Airline by Month
Data via Cirium
When this chart started, Jet/JetLite and Kingfisher made up nearly 45 percent of the market. Those airliens are now gone. But Air India at that time had almost 20 percent of the market, and it was never able to take advantage. IndiGo and Go First (formerly GoAir) grew like mad to fill the void while Air India didn’t do anything. Even its “low” cost operator Air India Express has barely made a dent.
Vistara came in with a full service model while AirAsia India had a low fare model. Both have grown. Somehow SpiceJet has survived this long, but it has struggled. More recently, Akasa entered the market, which you see in purple at the top right.
With Tata Sons now in charge of Air India/Air India Express/AirAsia India/Vistara, it has climbed back to an almost 20 percent share, but that’s despite Air India existing, not because of it.
With this merger, Tata faces the big challenge of not allowing the poisoned Air India culture of inefficiency infect Vistara. If somehow Vistara can drive this bus, maybe there’s something good to come out of this. But just take a look at the networks to see how that will be a struggle.
Indian Domestic Networks – January 2023
Data via Cirium
Domestically is where Vistara has the best chance of influencing the combined airline. Both have large operations in Delhi and Mumbai. Air India has more in the east with a larger operation in Kolkata and Chennai, but these networks don’t look too far off from each other.
Indian International Network < 2,500 miles – January 2023
Data via Cirium
When we start to look at the international network, we see Air India having a much greater presence. Yes, both of these airlines take advantage of the huge labor market going back and forth to the gulf states but Air India goes much deeper than Vistara. Same goes toward the east where Air India has more connectivity to nearby Asian countries from more cities. Vistara still has a meaningful presence.
Indian International Network > 2,500 miles – January 2023
Data via Cirium
It’s the long-haul network where Vistara barely registers. Yes, it has recently acquired 787s to fly to Europe and is growing, but Air India is the one that carries the flag on long-haul.
There is much to be rationalized in a combined network, you would think, but that doesn’t mean this will be an easy — or even feasible — road. Air India may dominate long-haul from an Indian carrier perspective, but that only counts if you don’t consider Emirates to be the real national airline of India. Let’s not forget all the European carriers and a growing number of American operators which fly to the country as well.
With Singapore putting a billion dollars in, that will give the airline some runway. It will also certainly solidify the airline’s position in Star Alliance, though Singapore has long been a lukewarm member. It is going to need as much help as it can get to make this Indian operation work.
There should be a need for a functioning full service airline in a country the size of India. The key word there, however, is “functioning.” Air India has never filled that role. Maybe now it can and then Tata can go and figure out what to do at the lower end of the spectrum.
You’d also think Air India Express would merge with AirAsia India on that side of the equation, but on the other hand, AirAsia probably isn’t willing to dump a ton of money into the new airline just to stake its claim the way Singapore is doing. One step at a time, I suppose.
