Vistara’s Farewell as Air India Merger Looms: What Lies Ahead?

Vistara recently made its final flight preparations, ceasing bookings on September 3 as it prepares to merge with Air India within two months. The joint venture between Tata Sons and Singapore Airlines (SIA), Vistara, earned a spot in the Top 20 list of the World’s Best Airlines this year. However, Tata’s acquisition of Air India in October 2021 made it unnecessary to continue operating two full-service airlines. The merger decision became more certain when regulatory approval allowed SIA to take a 26% stake in Air India.

Yet, the merger brings up concerns regarding the stark contrast between Air India and Vistara in service quality. “It is baffling that the civil aviation ministry allowed the merger of a modern, well-functioning airline like Vistara with an outdated one and has approved Tata’s decision to rebrand it as Air India,” said Kapil Chopra, founder of EazyDiner and The Postcard group of hotels.

Unmet Expectations from Air India’s Revival

When Air India returned to Tata, expectations ran high that the airline would restore its lost glory. However, many argue that progress has been slow. “If people were expecting miracles within a year, that is an impossible task. But now almost three years are over, it is time to show and demonstrate that there have been significant improvements in the operation of the airline,” commented Sidharath Kapur, former executive director of GMR Airports. He added, “The honeymoon period is over. People are now expecting more.”

The Tata Experience: A Misconception?

Jitender Bhargava, a former executive director of Air India, highlighted a flawed assumption regarding Tata’s capability to transform the airline due to its historical connection. “There is a belief that because Air India once belonged to the Tatas, they have the requisite experience (to run an airline). There can’t be a bigger fallacy than this!” he stated. Bhargava clarified that J.R.D. Tata personally ran Air India, not Tata Sons. Thus, the assumption that past experience alone would ensure the airline’s success is misguided.

While Tata ventured into aviation with AirAsia India and Vistara in the 2010s, those ventures were more about investment than operations. However, the situation changed after Air India’s acquisition. “Be it Titan, Taj hotels, or TCS, there is a certain expectation when people see the Tata name. The airline business, unfortunately, has not lived up to that promise,” explained Prof. Anand Narasimha, a marketing expert at JAGSoM.

Narasimha also pointed out that Tata’s decision to buy Air India for Rs18,000 crore, followed by additional investments in new aircraft, was more emotional than rational. The transformation process, branded as vihaan.ai, faced issues, including missteps in leadership. Kapur noted, “They brought in people from other Tata group companies, but then they realized you cannot bring an executive from a vehicle manufacturer to run an airline.”

To address the leadership gap, Tata recruited several expatriates from SIA, including CEO Campbell Wilson, who previously led Scoot, SIA’s budget airline.

Staff Demoralization and Management Missteps

Following Tata’s takeover, some Air India employees opted for voluntary retirement, while those who stayed reportedly felt demoralized as “Tata’s own people lording over them.” A senior employee shared, “I took this job several years ago despite lucrative offers from other PSUs because a job at Air India was more sought-after, with lots of privileges and perks. But now many of those have been cut down ruthlessly.”

Adding to the staff’s frustration was the perception that Tata inherited an underperforming workforce. Bhargava rejected this notion, stating that the employees “were not bad; they were just demoralized.” Tata’s failure to re-engineer work practices and address human resources issues became one of its biggest mistakes. “Ask any management expert what the key to a merger is? Manpower. How do you integrate the manpower and bring about harmony in work conditions? HR!” Bhargava emphasized.

As a result, management operated on a trial-and-error basis, leading to employee dissatisfaction, as seen in the recent strikes by Vistara pilots and Air India Express cabin crew. “Employees have to understand they are no longer in a government-run airline,” said Shivram Choudhry from JK Lakshmipat University’s Institute of Management. He added that Tata’s management should not dismiss past Air India employees while assuming its own executives knew better.

Challenges and Competitive Pressures

Despite these challenges, the competitive landscape in Indian aviation is undeniable. Bhargava pointed out that Tata’s decision to continue using older planes, even though they weren’t the best, was driven by the need to retain market share. “If Air India had withdrawn those services, other airlines would have taken that market,” he explained.

Kapur acknowledged Tata’s commitment to transforming the airline but criticized its lack of communication. “What is missing is a communication strategy. Air India is in the public arena, and a lot of your stakeholders are potential passengers,” he said.

Long-Term Transformation in Progress

While new planes, such as the Airbus A350s, are on order, Campbell Wilson had earlier explained that older aircraft would be retrofitted. “The process includes painting with the new branding and livery, and changing the interiors and seats,” he said. However, this will take time. Meanwhile, the management is focusing on smaller improvements, including redesigning the logo, introducing new uniforms, and enhancing the airline’s digital infrastructure.

Air India is also improving its frequent flyer program, adding more international partners. Moreover, lounges in major airports like Delhi and New York are set for upgrades. “We are confident that the modern, world-class look of Air India will appeal to our guests globally,” said Wilson.

Air India’s Future in a Competitive Market

Air India’s transformation is still in progress, with the complete overhaul expected by 2027. However, competition remains fierce. Domestic leader IndiGo continues to expand internationally, even offering a business class service, while Middle Eastern airlines also vie for market share.

Air India’s merger with Vistara is expected to improve the full-service offering, while the expansion of Air India Express strengthens its position in the low-cost segment. However, the challenge will be appealing to the modern traveler. Millennials and Gen Z are less impressed by traditional luxuries and more concerned with value and efficiency. Winning them over will be essential for Air India’s success.

Signs of Financial Progress

Despite the challenges, Air India’s financial performance shows signs of improvement. Losses for all four Tata airlines reduced from Rs15,000 crore to just over Rs6,000 crore this year, with Air India’s losses down by 60%. According to Kapur, the airline maximized load capacity and rationalized fares, resulting in better financial performance.

Kapur believes Air India could turn profitable in a few years if it maintains its current course. However, sister airline Air India Express has posted a Rs163 crore loss, primarily due to aggressive expansion to compete with IndiGo.

Ultimately, Tata’s long-term vision and deep pockets will determine whether Air India can reclaim its place among the world’s best airlines.