Merging airlines, emerging stronger – The Economic Times

On Tuesday, Singapore Airlines (SIA) confirmed what had been in the air, and reported by ET earlier this month: the merger of Vistara and Air India. SIA stated that it would be 25.1% owner after merging Vistara’s full-service airline joint venture with Tata Sons into the merged Air India. By merging its clutch of airlines, the Tata Group is poised to improve competition in the aviation sector. Previous mergers were driven by immediate exigencies like absorbing losses or working around government restrictions on business expansion. Those did not work. This merger will, however, exploit operating synergies, bilateral rights, fleet optimisation and Air India‘s brand value. SIA comes on board through its holding in Vistara while its Malaysian rival AirAsia departs. The emergence of a strong contender to budget carrier IndiGo for market leadership ought to improve on-time performance, in-flight services and airfares for Indian flyers.

The Tatas will seek benefits from reduced competition among group airlines, provision of premium services, lucrative foreign routes and Air India‘s legacy in airport slots. It will be the only buyer of substance for wide-bodied aircraft from India and its association with SIA yields gains in route management. The Tata ability to raise capital and its heft as a buyer should assist in replenishing Air India’s ageing fleet. The group’s principal challenge is Air India’s bloated workforce. But the Tatas’ experience with organisational change in a string of acquisitions at home and abroad ought to come in handy.

Consolidation on this scale has not been seen since the ill-guided merger of Indian Airlines with Air India. Boeing expects India to have the world’s fastest growth in air traffic till 2040. The Tata airline mergers are taking place against this backdrop. The US airline business has been kept robust by a series of mergers and the Tatas’ consolidation of their aviation ventures could do something similar here. It also provides Air India an opportunity to claw back business lost to foreign airlines.