Editorial: Spread-eagled in the sky

In a landmark consolidation in the rapidly-growing Indian aviation space, Air India recently completed the Vistara merger to create an integrated airline, partly owned by Singapore Airlines, which will invest an additional Rs 3,194.5 crore in the enlarged entity. The highly-anticipated amalgamation was announced in November 2022, and it has culminated one and a half months since the integration of Air India Express and AIX Connect. The merger completes the consolidation and restructuring phase of the Group's post-privatisation transformation journey, which began in 2022 after the Tata Group took back ownership of the loss-making full service airline, which was owned by the government since the 1950s.

Now, the two mergers have gone on to create a full service carrier (FSC) and a low-cost carrier of scale for the Tata Group, which aims to build a homegrown world class global aviation company. It’s a tall order, considering Air India is in the midst of the transformation phase and has been grappling with some rather pressing service issues. It’s worth noting that in the aftermath of the merger, Air India has become the country's largest international carrier and the second-largest domestic carrier. With the folding up of Vistara into the Group, the number of full service carriers in the country has come down to just one from five in a span of over 17 years, a clear indicator of the dog-eat-dog, cash-burn-centric nature of the aviation business.

The merger also marks the second major consolidation in India’s airline industry after 2006-2007, when Indian Airlines merged with Air India and Air Sahara merged with Jet Airways. During the same period, Air Deccan was amalgamated with Kingfisher Airlines. The development also marks the sunset of another Indian airline jointly owned by an overseas carrier after the liberalisation of foreign direct investment norms.

Recall that in 2012, then Prime Minister Manmohan Singh’s UPA government allowed foreign airlines to buy up to 49 per cent in a domestic carrier, which later resulted in the now defunct Jet Airways securing 24 per cent stake from Gulf carrier Etihad besides the birth of AirAsia India and Vistara. The bravado of a few enterprising individuals aside, the industry is beset by cutthroat competition and straitjacketed by rigid government controls. This eventually led entrepreneurs to dip their toes into the no-frills, low cost carrier (LCC) model, what we essentially refer to as the cattle-classing of air travel.

With rising air traffic and changing travel patterns, the LCCs began dominating the skies worldwide, with IndiGo ruling the roost in India. In the domestic market, the low cost behemoth occupies a plum 62.5% of the market share, followed by the Air India Group, which has a 29.1% share. Although most of the elements pertaining to the merger have been addressed in the last two years, a few issues persist — namely to do with the different retirement age limits at Air India and Vistara. Stakeholders in the aviation space are confident that such minor quibbles will be ironed out. With aviation traffic in the country growing at the rate of 15%, it will be interesting to see how a handful of players plan to pull up their socks and outshine the competition. What the flight plan will eventually boil down to is quality and breadth of service, supplemented by affordability and accessibility.