The Competition Commission of India (CCI) last week gave its nod to Air India for the merger of AirAsia India with itself. Air India also has a subsidiary in Air India Express. AirAsia India was the first of two joint ventures the Tata group formed as it returned to aviation, the other being Vistara in partnership with Singapore Airlines. As the privatisation of Air India kept getting delayed, the group’s ambitions meant that it took the very first opportunity that presented itself in the form of a joint venture with Malaysia’s AirAsia. What happened in the years that followed could best be termed as “forgettable” from the Tatas’ point of view. From court cases for “effective control with Indian nationals” to allegations of paying lobbyists who could have had links to terrorism, the challenges were countless.
Both the joint ventures saw similar plans in place to begin with, the top honchos being appointed by the minority stakeholder, but AirAsia India had a course correction. With allegations flying thick and fast and court cases against the entity, the Tata group stepped in and took control, providing steady leadership and job security during the pandemic even as AirAsia resorted to layoffs in its home market.
But there was always a question mark over the future of AirAsia India until the group won the bid for Air India and its subsidiary Air India Express. The win is also an opportunity to iron out some kinks when it comes to Air India Express, which, being a government entity, was exempt from a rule on fleet deployment.
The infamous 5/20 and 0/20
Ironic as it may seem, AirAsia lobbied very hard to remove the 5/20 rule which mandated airlines had to complete five years of flying in domestic skies and have a fleet of 20 aircraft before being permitted to operate international flights. The rule subsequently became 0/20, mandating airlines to have a fleet of 20 planes before flying internationally. As things would have it, with one issue leading to another, AirAsia India has never operated a scheduled international passenger flight!
Cut to 2022. The revised rules mandate airlines to deploy 20 aircraft or 20 percent of total capacity (in terms of average number of seats), whichever is higher, for domestic operations. The regulator will consider six departures per day per aircraft for calculating this rule.
Here comes AirAsia India
In April 2022, the first month of the summer schedule, Air India Express operated 2,399 international flights with the domestic departures being 26 for the entire month, clearly not meeting the criterion. However, this does not count as a violation since the Tata group has leeway of a specific period of time to continue as before the rules kick in. This helps avoid an overnight change in operations that may have led to chaos for customers and put the new owners in a spot.
AirAsia India, on the other hand, operated 4,290 domestic departures the same month. AirAsia India has 29 aircraft in its fleet, while Air India Express has 24. With an average of 180 seats, AirAsia India would have deployed 7,72,200 seats on domestic flights, while Air India Express saw 4,46,214 seats being deployed on international sectors. The math clearly adds up when both merge to form one airline. There remain two challenges though—fleet and cross-selling.
Fleet
Air India Express has been a B737NG operator while AirAsia India operates the A320 family, a mix of ceo and neo aircraft. Will there be a phased fleet rationalisation? The answer could lie in the impending order that the Air India group would place in the next few days. Both Boeing and Airbus are said to be in the running for what could be one of the largest aircraft purchases ever.
There is also the unwelcome legacy the Tata group inherits, that of discontent from the days of the Air India-Indian Airlines merger that still simmers. Can the group handle industrial relations better as Air India Express and AirAsia India merge?
One Air India
Air India Express started operations in April 2005. Back then, the idea was to have Air India for international flights, Indian Airlines for primarily domestic duties and Air India Express as the low-cost international flight operator. Indian Airlines was merged with Air India in 2011, simplifying the group to some extent but adding complications for the human resources department with former pilots of Indian Airlines mainly saying that they got a raw deal.
While there is evidence of Air India and Air India Express having coordinated in the past in terms of routes or timings, cross-selling each other’s flights is a different ball game. It is a double-edged sword. By not doing so, airlines are letting go of a valuable opportunity as a potential customer does not have access to your entire network but by doing so the customer tends to have two vastly different experiences—one full service and one low-cost!
Campbell Wilson, who has been named the new CEO and managing director of the Tata group’s aviation business, is then perhaps the best fit in these circumstances. The incoming head of Air India will bring along this experience as CEO of Scoot, the low-cost wing of Singapore Airlines—the flagship airline started selling flights operated by Scoot as part of codeshare. As the world moves more and more towards low-cost carriers, a standardised structure is evolving on how they can partner full-service carriers. This is far removed from what two other airlines in India, Kingfisher Airlines and Jet Airways, tried with their low-cost offerings!
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