Can the combined Tata power take on IndiGo?

Representational image.

National carrier Air India has been up for privatisation for eternity! The most serious attempts to privatise the loss-making airline happened during the two terms of the Modi government.

The ones supporting privatisation claim that the money needed to sustain Air India can be better utilised for the welfare of the country. Those against stress on the need to have a national carrier.

The TATA connection

JRD Tata founded TATA Airlines in 1932, and it was nationalised as Air India in 1953. JRD continued as chairman of the airline until 1977. When the sector was opened up for private participation in the 1990s, the TATA group tried partnering Singapore Airlines, but its bid to enter the aviation space hit a brick wall as Foreign Direct Investment (FDI) was barred in India.

The rules changed. While Kingfisher was on the brink of collapse, the incumbent government allowed FDI - yet again. While Kingfisher collapsed, it helped Jet Airways sustain a little longer.

At the same time, the TATA group announced a tie-up with the Tony Fernandes-led AirAsia Bhd for a low-cost carrier and soon followed up with a tie-up with Singapore Airlines for a full-service carrier.

While the former has since been mired in controversy, the latter has seen a steady rise. As it stands today, the TATA group owns over 80 percent of AirAsia India and continues to hold 51 percent in Vistara, the full-service carrier. The remaining stake is owned by Singapore Airlines.

More than a dream of owning Air India again, it is the scale which is attracting the group. To be successful in the business, the required scale can only be achieved in a non-organic manner. After over five years of operations, the combined market share of Vistara and AirAsia India has barely been able to challenge the number two spot.

With AirAsia India not yet having permission to fly abroad, it is even dismal on the international front. Vistara’s international expansion with wide-body aircraft has, sadly, coincided with the pandemic.

What it means for Vistara

The airline has ambitions to fly across continents and seas but the challenge of bilateral rights and slots at congested airports like London Heathrow, New York, Chicago or Hong Kong will be an eternal challenge.

Air India not only holds slots at these airports but also has a handsome entitlement of bilateral rights. If this is not enough, Air India also has the aircraft to fly to these places non-stop, unlike Vistara. While they would not be as economical as the new Dreamliners, they are definitely good for a stop-gap arrangement until a new set of aircraft can be inducted.

What it means for AirAsia India

The weak link in the whole portfolio is AirAsia India, which may be up for a change in name, post March 2022. With a fleet of A320ceo and A320neo, it doesn't fit into the Air India Express portfolio of B737s. Will it work alongside Air India Express on a code-share basis temporarily till a fitment is found or will the airline slowly start releasing slots and manpower in favour of the combined entity?

While an Air Operator Permit (AOP) is of great value in India to start a new airline at a faster pace, the legacy which AirAsia India has, may keep potential buyers away.

How big will the combined entity be?

With the B747s clubbed with the ATRs of Alliance Air, Air India will have 76 A320 family aircraft, along with 16 B777 and 27 B787s. Air India Express has 24 B737-800s. This will be a fleet of 143 aircraft. Vistara currently has 48 aircraft while AirAsia India has 33. The combined entity would have a fleet of 224 aircraft, assuming all of these stay in the fleet. However, both Vistara and AirAsia India are likely to redeliver a few aircraft in due course of time, before the integration is complete.

IndiGo stands at 260-plus aircraft and while it is likely to see a small dip in the active fleet count next year, it is unlikely that it will lose the leadership position in the market - either by market share or by fleet count!

The combined might of the TATA group will not help stop IndiGo on the domestic front but assume an immediate leadership on the international front.

Going forward, with IndiGo not keen to induct the wide-body aircraft, just yet, the TATA group would lead international capacity and assume leadership while IndiGo will continue with the domestic market share leadership.

What would really matter is the bottomline and how the balance sheet plays up and that looks a longer road for the TATA group than IndiGo!