Vistara’s merger with Air India sparks concerns on service quality

New Delhi: The merger between two full-service airlines of the Tata Group, Air India and Vistara, will be completed on 12 November. That day, Vistara’s crew, aircraft and air operator certificate will be transferred to Air India.

Vistara, a 51:49 joint venture of Tata Sons and Singapore Airlines, said in a statement to the media on Friday that from 3 September onwards, flight tickets on the airline cannot be booked for travel on or after 12 November. Customers attempting to do so would be redirected to Air India’s website.

The merger announcement was met with cynicism from industry participants, as they expressed misgivings on the ability of Air India to match up to Vistara’s high standards.

The final date of the merger was announced hours after the Indian government gave formal approval to Singapore Airlines’ foreign direct investment (FDI) in the merged entity. Following the approval, Singapore Airlines will hold a 25.1% stake in the merged Air India.

“Vistara and Air India are committed to ensuring that this transition is smooth and hassle-free. We are excited about this new phase in our journey and look forward to welcoming our customers again soon – as Air India,” Vinod Kannan, chief executive officer of Vistara said in the statement. 

Also read | Air India to operate as merged entity from 2025; no Vistara brand by year-end

Customers who are already booked on Vistara flights for 12 November or beyond will automatically have their reservations converted to Air India flight numbers. This will occur in phases during September. The airline will inform the customers individually when this occurs.

“For Vistara flights on or after 12 November, the flight numbers will change to Air India ones, even though in nearly all cases the aircraft, schedule and operating crew will be unchanged until early 2025,” Air India chief executive officer and managing director Campbell Wilson told employees in an internal email on Friday. Mint has seen a copy of the email.

Can Air India measure up?

Vistara commenced its commercial operations on 9 January 2015 and currently has a fleet of 70 aircraft. As per the latest data from the Directorate General of Civil Aviation (DGCA), Vistara held a market share of 10% in the domestic segment and 4.1% in international traffic. Air India, comparatively, holds a 14.3% share in the domestic market and 13.1% in international traffic to and from India.

But observers are not convinced that the merger will be good for the consumer.

“The eventual sunset post-Diwali takes care of the Diwali rush and anything around that would have led to confusion. Indian market is largely a last-minute booking market except during festivals when knowing the higher costs, passengers tend to book early,” Ameya Joshi, founder of aviation consultancy firm Network Thoughts said, adding that competition and passengers will keenly watch if Air India is able to match Vistara’s high standards.

Also read | Vistara, Air India step in as Air India Express attempts to stabilize operations

"Vistara had built up a loyal customer base over the years, and discontinuation of the brand will have an impact in the near term since not all Vistara flyers will shift automatically to Air India,” said Ajay Prakash, board member of Federation of Associations in Indian Tourism and Hospitality, adding that Air India will face a challenge till all its old aircraft are refurbished and more new aircraft inducted.

Rajiv Mehra, president of Indian Association of Tour Operators, said that Air India would have make a marked improvement in terms of facilities. “In the long term, it remains to be seen how the merger pans out between the two airlines, as a Vistara flyer is used to premium services while Air India on all yardsticks can’t match up to it.”

What now?

Meanwhile, Singapore Airlines informed the country’s stock exchanges on Friday about the Indian government’s approval of its FDI in Air India. “This approval, along with other governmental and regulatory approvals received to-date, marks a significant development towards the completion of the merger.”

“This merger will reinforce SIA’s multi-hub strategy, and underscore its long-standing commitment to India through a direct stake in this large and rapidly growing aviation market,” the statement added.

Mint had reported in June, citing three executives aware of the development, that the Tata group plans to bid goodbye to the Vistara brand by the end of 2024, as it aims to bring its four airlines under one umbrella.

The merger of Tatas’ two other airlines—AIX Connect (formerly AirAsia India) and Air India Express—is also underway and awaiting NCLT approval. The Tata Group had acquired Air India's subsidiary Air India Express in January 2022.

And now | Air India-Vistara merger: CEO Campbell Wilson's blueprint

The Tata Group broadly aims to create a large low-cost carrier in the form of Air India Express, focused on short-haul international and domestic market, and a large full-service carrier in the form of merged entity of Air India which is expected to serve the metros and medium to long-haul overseas network.

Under a transformation programme called Vihaan.AI announced in 2022, Air India aims to capture 30% market share in the domestic market and significantly increase presence in the international markets over a period of five years. In February 2023, Air India placed an order for 470 aircraft, including 400 narrow-body ones and 70 wide-body ones, and 40 from the Airbus A350 family.