The Tatas should be as resolute running Air India as the government was in selling it

(PC-News18/MoneyControl)

The Tata group is finally set to board Air India. The airline was sold to Talace Private Limited — a subsidiary of the Tata group’s holding company — for Rs 18,000 crore on October 8.

The Indian government is likely to hand over Air India to the Tata Group on on January 27. As per CNBC-TV18, Tata Sons chairman N Chandrasekaran will be meeting Prime Minister Narendra Modi today ahead of the likely handover.

The group has waited for an eternity to get a ticket and a boarding pass. Now, the focus shifts to what it will take for the Tatas to run Air India and merge it with the group’s other carriers.

Here are the three key factors that will need immediate attention and investments: branding, systems integration and route rationalisation.

Branding

With this win, the Tata group will have to handle four brands: Air India, Air India Express, Vistara and AirAsia India. While Air India and Vistara are full-service carriers (Vistara pitches itself as a premium full-service carrier) Air India Express and AirAsia India are low-cost carriers. The Tata group-founded AirAsia India in 2013 in partnership with AirAsia Bhd. That same year it established Vistara, in partnership with Singapore Airlines.

Also Read: Air India bid: How the Maharaja fell from the skies

With the group raising its stake in AirAsia India to over 80 percent, it may look at rebranding or merging the airline with Air India Express, though they use different types of aircraft. Until the integration is complete, AirAsia India could just be the operating carrier, while Air India Express remains the marketing carrier. This would be akin to Jetlite operating for Jet Airways, wherein JetLite had a separate Air Operating Permit but never sold flights on its own. Its operating flight number was coded ‘S2’ but passengers always saw the flight number as ‘9W’ (the code for Jet Airways).

A similar arrangement between Vistara and Air India may not work well. Air India has the largest network out of India and Vistara is just setting out. It will take a while for the international network to know the change. Until then, will both airlines start using “from the house of Tatas or a Tata enterprise?”.

The biggest challenge is to merge the Air India and Vistara networks. Vistara is a fresh brand unknown to the world, while Air India is an established brand that also comes with the legacy IATA code “AI”.

But  both Air India and Vistara are struggling to fill their business class on certain sectors and opting for mono class aircraft to operate in others. Will this open up the combined entity to just one brand that will be seamless in terms of transfers from international to domestic and vice versa, along with domestic to domestic transfers?

Also Read: Air India Sale | A look at the debt-ridden Maharaja and other airlines in Tata Group's kitty

Currently,  AirAsia India does not have rights to fly internationally, and while Air India is part of the Star Alliance, Air India Express is not a member. The two Air India brands do not codeshare with each other or cross-sell inventories and there are a few markets where they co-exist.

A large entity with a European Business Class model could well be the way forward for domestic routes, where the longest flights are of less than four hours’ duration. Under this model, the middle seat is left empty and meals are served while the economy class has to buy on board.

Systems integration

While a lot of the focus has been on employee integration, often citing the fact that the Indian Airlines-Air India merger has not been seamless, there is another integration that is critical — systems integration.

Airlines run on complex IT systems. This includes those used for planning, revenue management, operations control, crew rostering, as well as complex reservation systems. Currently, there are multiple systems in the picture across these four airlines. The challenge will be to shift them to a single system or two systems.

A cue can be obtained from the Kingfisher Airlines–Air Deccan merger, where, due to the gap in systems, Air Deccan inventory was manually released for sale by Kingfisher Airlines. Essentially, this meant that Air Deccan assumed it had fewer seats to sell than the aircraft’s actual capacity. This kind of arrangement leads to sub-standard revenue management practices and potential loss of revenue.

Route rationalisation

With the government keen to hand over the airline to the new owners soon, the first challenge will be sorting out route overlaps. The Tatas wouldn’t want to have two flights from the group departing to the same destination within minutes of each other. Preventing this would require working with different teams internally and externally to ensure that flight spacing is co-ordinated. Revenue management teams will have to coordinate closely to not eat into each other's revenue. Yesterday’s competition is today’s partner and now the joint competition is against IndiGo and other low-cost carriers.

Sorting out the route overlap is not something that can be done overnight. The real challenge lies in the fleet of the combined entity. It would have mono-class, dual-class, triple-class aircraft and span A319s, A320s, A320neos, A321s and A321neos.

Passion cannot drive profits

More often than not, the passion of patriarch and Chairman Emeritus Ratan Tata is cited as the reason for the group re-entering the aviation sector after many decades, despite the failure of many an airline. But passion hardly drives profitability in aviation. If that was the case, Kingfisher Airlines would still be around.

The flight ahead will be long and turbulent, and it will take another four to five years for all the entities to be seamlessly integrated. Judging the Tata group before that would be a mistake. Nevertheless, the Tatas will have to show the same dedication the government did in selling Air India to make this acquisition a success.