Vistara-Air India integration—what it means for aviation industry
On Monday, Vistara operated its last flight, thereby officially ending its identity as an independent full-cost carrier. As its flight code changed from ‘UK’ to ‘AI2’, many loyal passengers were left wondering if the quality and standard will be maintained after merger with Air India—the erstwhile national carrier still grappling with financial and legacy issues.
Experts say the integration of the two Tata-owned airlines, a part of the “transformation strategy” of the group, was critical for financial health and survival of the two loss-making entities. “The merger was required to strengthen the group’s position in both domestic and international markets and help it overcome financial troubles,” they add.
According to officials, the “strategic move” will not only help make the AI brand stronger, “the merger will help streamline air operations and enhance in-flight experience of all passengers.” “Quality of service and hospitality will be ensured and Vistara’s high standard, which passengers are used to, ensured for all AI passengers,” they assure.
Vistara
With the name taken from Sanskrit word ‘vistāra’ meaning “limitless expanse”, Vistara was launched by TATA Sons with 51% equity and Singapore Airlines with 49% stake.
The airline was founded in 2013 as a joint venture (JV) between Tata Sons and SIA, who also made an unsuccessful bid around the mid-1990s to launch a full-service carrier in India.
After India opened its airline sector for 49% FDI, they floated the Tata SIA Airlines Limited (TSAL), a premium full-service carrier to cater to the demands of high-end business travellers in the Indian market dominated by low-cost carriers.
After the merger, SIA now has 25.1% share in AI.
Financial issues
The merger is expected to generate annual savings of around Rs 500 crore on the back of renegotiated contracts, fuel costs, lounges, ground operations and infrastructure, catering, etc, according to reports
“The fact is Vistara was competing with Air India, now they will operate as one entity, not against each other as competitors. Aviation is a high-cost industry, the merger will help the integrated brand recover its financial health by streamlining operations and reducing redundancies. Also, this is the best time to execute the merger when there is no other competition from any other full-cost carrier in the domestic market,” say experts.
The bottom line is that together they will be better placed to handle financial pressures, negotiate bulk procurement at improved rates, improve efficiency in operations and tackle competition in domestic and international markets.
AI is now only full-cost carrier in India
As one entity, Air India has no competition in the full-service segment in the industry.
As integrated AI takes to the skies, competitors and other airlines will be watching closely.
The industry, both in India and other countries, is replete with stories of mega launches, high-profile mergers and heart-breaking groundings.
In fact, the troubled end to Kingfisher, Air Deccan, Air Sahara and Jet Airways, which at one time was India’s largest private airline, makes a fascinating case study of travails of the high-end aviation industry and the outcome of the strategic AI-Vistara merger.
Tata Group had acquired loss-making Air India from the government in 2021.
New beginnings
For aviation observers and enthusiasts, the merger is the beginning of a new chapter in the Indian aviation industry.
It follows the merger of the groups’ low-cost carriers—Air India Express and AIX Connect.
According to Air India, the integrated entity will operate more than 5,600 weekly flights and connect more than 90 destinations.
Air India MD and CEO Campbell Wilson said the merger completed the consolidation and restructuring phase of the Air India Group’s post-privatisation transformation journey.
“Air India Group has completed the operational integration and legal merger between Air India and Vistara, creating a full-service carrier of scale and marking a significant milestone in the post-privatisation transformation journey. This follows the merger of the Group’s low-cost airlines Air India Express and AIX Connect (formerly Air Asia India) on October 1, 2024.
“Over the past two years, teams across the four airlines have worked closely together and with other stakeholders to ensure that the transition of people, assets, operations and, most importantly, customers, was as seamless as possible,” according to the official statement.
The fact is AI and Vistara had been struggling financially and needed to optimise operations. The merger is part of the brand’s transformation strategy and central to achieving cost savings of around Rs 1,800 crore by FY27.
Individually, both airlines struggled to achieve profitability; can they make it a win together, that the balance sheets will tell.
