It was an announcement that almost flew below the radar. One moment, Air India was stacking up losses that provoked dismayed groans across the government. Then, in a flash, it had flown into the Tata stable or should we say hangar. The media and public, who would once have created a loud stir about a much-loved old family retainer being summarily sold off, were silent. Instead, the headlines were almost perfunctory about a long-awaited event. Then, it was buried by noise surrounding the Economic Survey and the Union Budget.
Now the question is what are the Tatas going to do with the airline — or airlines if you count Air India Express separately — along with the other two unprofitable carriers, AirAsia India and Vistara, they either own or part-own. Together, the Tatas have a 25 per cent share of the market, enough to give them clout in the aviation industry.
But they’re up against IndiGo which over the last 17 years has built up a 60 per cent share of India’s passenger air traffic. Jet Airways is planning soon to return to the skies but will have a tough time against the new big two. And SpiceJet’s clinging on there, though its financial position after two pandemic years can’t be good.
A turnaround will need deep pockets, which only the Tatas have, and aviation industry experts predict it will take three-to-five years to revive Air India which loses a stratospheric ₹20 crore daily. This being the airline business, known for high sensitivity to unpredictable events, it could take longer — or never happen. Aeroplanes may respond swiftly to their pilots’ commands but airlines are a different story.
Aviation industry experts believe Vistara and Air India should be merged to maximise operating efficiencies but indications are that, for now, Vistara’s 51 per cent owner Singapore Airlines isn’t ready to play along. Singapore Airlines has also been feeling the pinch of the last two pandemic years, otherwise, it might have joined forces with the Tatas to launch a joint bid for Air India. But the logic of a merger appears compelling and the Tatas seem ready to give their partner time to change its mind.
Bringing together Air India Express and AirAsia India might be an easier task. AirAsia is gripped by deep financial woes in its home market, Malaysia. And since AirAsia India wasn’t in great financial shape in December 2020, its Malaysian owner sold a 37.2 per cent stake to the Tata group. The Tatas are expected in the near future to buy out the remaining Malaysian stake in AirAsia.
Air India Express has turned into Indian aviation’s surprise success story of the last decade. It shifted headquarters to Kochi and turned into a winner as a low-cost airline between India and the Gulf. Initially, it had older planes but now has a 24-strong fleet of relatively new aeroplanes.
So Air India Express and AirAsia India could be merged and turned into a low-cost winner with strong international and Indian routes. AirAsia India has a fleet of 33 planes flying domestic routes mainly to smaller Indian cities. The only catch is that AirAsia India flies Airbuses and Air India Express flies Boeings. To minimise expenses, low-cost airlines try to fly with one type of plane.
Ideally, Air India and Vistara should be brought together and run as one organisation. But here there are greater issues to be resolved. As mentioned, Singapore Airlines doesn’t appear to be keen on a merger for now. Besides, Air India is still suffering from the hangover of a badly executed merger between the erstwhile Indian Airlines and Air India. Bringing in Vistara would usher in a third party to an uncomfortably co-existing twosome which hasn’t turned a profit since the 2007 merger.
The first reports of the changes to Air India are that orders have gone out to serve good meals with better crockery and cutlery and improve service standards — something that would have gladdened the heart of the airline’s original founder JRD Tata who was a stickler for impeccable service. But the industry has come a long way in the last two decades and there’s a towering question mark about whether there’s room in the market for a full-service airline, even if it’s the Maharaja offering excellent service.
Indigo in the lead
The industry standards are now set by IndiGo which offers strong service even though it’s a low-cost airline. And India is an intensely price-conscious market and industry experts doubt whether an airline can charge more than IndiGo and attract passengers.
IndiGo has 261 planes. Even Vistara, which has been flying Indian skies for the last seven years, hasn’t turned a profit yet. It does get passengers for its widely lauded premium economy seats but there isn’t a huge rush.
The government is doing its level-best to give the Tatas a fighting chance of making a success of its new buy. The airline has been sold for a relatively cheap price. Besides that, it has reportedly also paid to fully buy several 27 Dreamliners which the airline was running on sale and leaseback terms. That will sharply bring down operational costs.
The government has reportedly also paid the penalties for prematurely ending the sale and leaseback deals. Many of the planes in Air India’s 123-strong fleet are quite old and will need to be replaced in the not-too-distant future. Luckily, that might not be as expensive as it would normally be because prices have fallen steeply as the airline industry is in dire straits after the last two years.
Still, Air India has strong points in its favour. It’s got a mix of international and domestic routes that could be turned into winners. The airline has been forced both internationally and domestically to fly loss-making routes because of political imperatives. Reducing these could bring quick results.
And there’s the fact that international airlines — especially the powerful Gulf players — have captured a ridiculously large share of international routes in and out of India. Air India has less than a 20 per cent share of the Indian international market. Ideally, a revamped Air India should be able to recapture many passengers. Air India has strong direct flights to places like San Francisco and New York. In the wake of the pandemic, industry experts reckon infection fears will lead passengers to avoid 6th freedom flights which involve changing planes at places like Dubai. Air India’s rival IndiGo has only made tentative moves into the international market.
Can the Tatas pull off their huge move into the aviation industry? It will be a long-haul flight and potentially a very bumpy one.