Within a year of taking over loss-making Air India, the Tata conglomerate has restructured its four carriers to become the only Indian air transport group to operate both full-service and budget services. The final piece of this jigsaw was put into place with an announcement on Tuesday that Singapore Airlines (SIA) agreed to merge its Vistara subsidiary with Air India.
Under the agreement with SIA, the Singaporean flag carrier will invest an initial S$360 million ($250 million) in the merged group and has agreed to contribute to a further cash injection of up to $615 million once the merger is completed by March 2024. SIA currently holds a 49 percent stake in Vistara and after the merger, this will shift to 25.1 percent in the enlarged Air India group. The group will encompass Air India and Vistara, Air India Express, and AirAsia India. Together, they have a fleet of 218 widebody and narrowbody aircraft, serving 38 international and 52 domestic destinations.
Air India will be India’s largest international carrier with a total share of 24 percent and second largest domestic carrier with a 24 percent market share after leader IndiGo which holds 57 percent. Indigo's fleet comprises 284 aircraft. For Air India to catch up on its domestic market share, it will need to double its narrowbody fleet.
The merger will boost SIA’s presence in India, strengthening its multi-hub strategy, and will “unlock a significant potential,” commented its CEO Goh Choon Phong. Eight-year-old Vistara will be able to access Air India’s prized airport slots and air traffic rights at domestic and international airports and Air India will be able to tap Vistara’s operational capabilities and customer base.
According to a confidential note sent to employees by Vistara CEO Vinod Kannan, which has been seen by AIN, no jobs will be lost as a result of the merger. However, there are likely to be some challenges in the merger of different work cultures between the various subsidiaries of Air India, which is widely seen as being riddled with inefficiencies.
Air India’s detailed Transformation Plan, called Vihaan.AI, focuses on growing both its network and fleet over the next five years. “Air India will strive to increase its market share to at least 30 percent in the domestic market while growing international routes,” the roadmap document states.
According to the most recent market forecast from Airbus, passenger traffic in India is to grow at 6.2 percent each year per annum by 2040. The European aerospace group said this represents the fastest increase among the major economies and above the global average of 3.9 percent. Demand for air travel is surging with Indian passenger traffic expected to more than double over the next 10 years, according to Boeing. “The key elements that will promote continued growth in the region will be the competitive domestic market and opportunities in international routes,” commented Dave Schulte, the U.S. airframer’s managing director for regional marketing.
Overall, India is still relatively underserved with low volumes of international seats per capita. Supported by rising income levels and ongoing investments in its aviation infrastructure, the large country is the fastest-growing global economy, and is projected to become the third largest in the world by 2027. India’s GDP could more than double from $3.5 trillion today to surpass $7.5 trillion by 2031 according to data from investment bank Morgan Stanley.