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.
13 comments on “Singapore Makes a Big Bet That Air India Can Get Its Act Together”
When I suggested on other sites shortly after the Tata purchase of AI that AI should become the domestic identity of the Tata Squadron and that Vistara should become the foreign identity and handle long haul (because AI had poisoned the well in terms of customer service), people treated me like I suggested that we gun down a bunch of puppies. They insisted that if there was no India in the name of a Tata-owned airplane flying overseas, that no Indian would fly it. I accepted it at the time just to shut these critics up instead of saying what I should have said: If that’s the case, then you have 1.4 billion versions of Sanjeev Bhaskar’s India Guy who don’t care that they’re being given a miserable, cheap, shabby experience for lots of rupees just because the plane logo says “India”. In very little time, the Tatas made Vistara a by-word for high-class full service on Indian-registered metal. No, they’re not the ME3 or Singapore, but now they’re not going to be given the chance to become that good.
The chauvinism of Indian consumers, the price-sensitive nature of the market, and the residual equivalent of eye crud that’s sealed the sight of Air India will be headed for doom for AI, Vistara, and Singapore unless the Tatas take the sacred bull by the horns. AI needs to change and needs to be forced into doing so. That means installing Vistara management at the top of AI and getting rid of the time-servers employed under the Indian government and still acting as sclerotic fat globules in the AI bloodstream. The Tatas need to be active. They can’t just tell everyone that it will happen and let it proceed. Most of all, Vistara has to drag AI up, not have AI drag it down to its level. Singapore is watching. They’ve seen what happened to Etihad, both financially and reputationally, when Etihad got into bed with Air Berlin and Alitalia, thinking that a sprinkling of magic money could create a cultural change. It didn’t, it wouldn’t, and it couldn’t. If the Tatas lose their grip and Air India starts to become a black hole of aviation suck again, Singapore has to take action.
And meanwhile, Vistara does not deserve to die and disappear. I’ve seen suggestions elsewhere like naming AI’s frequent flier program Vistara or doing a refurbished business class on the long-hauls and calling it Vistara (viz. Polaris on UA). I have my requests: Minimum, call the airline’s lounges Vistara by Air India. Maximum, call the long-haul operations Vistara by Air India. Yes, Tata family, your ancestor founded Air India. But you founded Vistara. Why aren’t you taking as much pride in that as the pride you take in what JRD Tata did in 1932?
Rebranding internationally as Vistara seems very smart. Air India has a terrible reputation. Every Indian American I know won’t even consider flying Air India long haul back to the motherland. Even my most frugal relatives will pay more to fly Emirates, etc. Years of bad management have poisoned the brand’s reputation.
> They insisted that if there was no India in the name of a Tata-owned airplane flying overseas,
> that no Indian would fly it.
Seems like they don’t have a problem flying Emirates or Qatar.
I am not Indian and don’t understand all the cultural baggage. But I know enough that I would never fly Air India (or any airline, whatever the name) with a similar reputation if there are alternatives.
My flights to India were all on LH (wanted United EQM), my domestic flights were all on Je5 Airways (you can tell it was a while ago).
What was explained to me when I suggested to change Air India long-haul into Vistara was that Indians had an almost neurotic point of pride in flying the flag on the flag carrier when going to different countries. If they were flying on Indian metal, the metal had to be painted with the word “India”. This was especially true of the diaspora. I’ve become certain that the only reason United’s ORD – DEL flights are loaded is that Air India’s flight ran out of room (and they are loaded; I’ve passed that gate many times).
Of course India’s Long-Haul Airline is Emirates. Have you ever heard the phrase “rednecks with money”? Indians with money gravitate to Emirates as a way of showing off that they have wealth. The poor and the working class who are going to the Middle East for work fly on IndiGo. Let them eat cake.
If I wanted to go to India, it would be on my hometown airline, United, so I could fly the Chicago flag to Delhi. Also, because I’ve got the PlusPoints to bump me up to Polaris. I’d certainly avoid an airline with the reputation for grubbiness and parsimony that Air India has. Now if it was Vistara doing that ORD – DEL flight, I’d consider the trip from Terminal 1 to Terminal 5.
I really wanted to try Vistara some time. Guess that won’t happen now.
I fear the Vistara/Air India tie-up will end up like so many other good company/bad company mergers with the result being a larger badly-run company.
regardless of what happens in the domestic market, it is hard to understand how Indian carriers have had such a low market share of India international traffic.
While private company failures such as Jet Airways are part of the problem, part is also due to Indian government policy which has been one and the same as Air India policy.
Maybe AI will succeed just by fixing basic customer service failures – like dozens of broken seatback video monitors on 10 year old B787s – but part might also be by simply putting enough seats into international markets while controlling a high enough share of the domestic market to provide connectivity for AI international flights and higher fares domestically to subsidize international ops.
Vistara has never made a profit, ever.
It is great to have a nice product but not so great if you cannot make money off it.
The problem is Indian consumers love to talk about luxe this and high end that but then most quickly run to discounters when it comes time to purchase hence the domestic dominance of Indigo.
I’m skeptical of this new Air India to say the least.
They got into this fully aware that they will lose money for the next few years and at least till Ratan Tata is alive, Tata Consultancy Services exist & to some extent Tata Steel will keep Air India & Tata motors (JLR) running even if they lose billions. And whether or not they will ever make money, they will definitely improve the quality of the airline in the next 2 – 3 years considerably. It’s their pride!
Airlines will ever make money in India only when whichever government in India realises it’s essential services and not treat as a luxury commodity!
People who criticize and expecting miracpe in few months, don’t worry, there’s still millions of flyers who will keep them afloat. You can continue flying ME3 and the excellent Big 3.
Brett, Air Asia India and Air India Express will also be merged, infact earlier than AI-Vistara. The LCC merger will happen by end of 2023, and the combined entity will be called Air India Express only.
Also – I’m very optimistic that in the next 3-5 years, we all would see a reinvigorated and world-class Air India. The right ingredients and more importantly, the right intent is there.
Vish and Harsha – WHOA, I missed that one. Thanks!
https://indianexpress.com/article/business/aviation/airasia-air-india-8245634/
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.
This has already been announced. AirAsia has sold their stake in AirAsiaIndia to Tata and Tata has already announced that it will be merged with Air India Express to create a single LCC under the Air India brand.
Out of curiosity, what makes Singapore Airlines a “lukewarm” member of Star Alliance?
Jamie – At least from a US carrier perspective. They’ve always marched to the beat of their own drum, more content building alliances bilaterally as a priority. The alliance has tended to come after that historically for them, so it means integrations haven’t been quite as good between non-priority carriers.