The merger of Air India and Vistara is estimated to result in an annual savings of over ₹500 crore for the unified entity as it attains a larger global and domestic footprint, sources close to the development told businessline. 

According to sources, these savings are primarily derived from renegotiated contracts in areas such as operations, fuel, lounges, ground infrastructure, as well as catering.

Air India had embarked on a five-year transformation journey that it calls “Vihaan.AI”. Under this, the airline has completed the first two phases called “Taxi” and “Take-off” and entered the final phase — Climb — earlier this year. 

In the “Climb” phase, the focus of the airline is to create a fully integrated airline with the merger of Air India and Vistara, improve customer value propositions and drive profitability.

One of the most compelling aspects of this merger is its alignment with Air India’s “Road to Profitability” strategy. 

The airline has set a clear goal to return to profitability by FY27, and the merger with Vistara is a pivotal move in this direction, especially to achieve an overall cost savings of ₹1,800 crore by FY27.

As per sources, the estimated ₹500 crore annual savings represents a tangible impact on the airline’s bottom line, particularly in the high-cost aviation sector. The merger allows Air India to streamline operations and reduce redundancies, which are critical for improving efficiency and reducing costs. 

The combined entity will be better positioned to withstand industry challenges, from fluctuating fuel prices to pressures from competition, in both domestic and international markets, sources added.

Notably, the consolidated Air India can now negotiate bulk procurement at better rates, thereby improving the overall cost-efficiency of its operations.

On their own, both airlines haven’t made profits; however, a consolidated Air India, with a large and synergised domestic and international operations, plans to change the balance sheet from red to black by FY27.

“The financial discipline achieved through cost savings will lay the foundation for sustainable profitability, allowing the airline to reinvest in key areas such as fleet expansion, customer service, and technology,” sources told businessline.

As the merger approaches, Air India has said the Vistara experience will continue for customers while it retrofits Air India’s legacy aircraft, starting with the narrowbody fleet, which is expected to be completed by mid-2025.

Last week, Singapore Airlines, which is a shareholder in Vistara, said it expects a non-cash accounting gain of approximately SGD 1.1 billion ($832.45 million) once the Air India-Vistara merger is completed. Post-merger, Singapore Airlines will hold 25.1 per cent share in the unified Air India.