Turbulence ahead: On Tata Group acquisition of Air India

Air India will need all the managerial expertise it can get to turn into a successful buy

February 01, 2022 12:02 am | Updated 08:21 am IST

The Tata Group’s consummation of its acquisition of Air India last week marks both the culmination of the airline’s return to its original founders after an almost seven-decade hiatus , as well as the start of an arduous long-haul flight for the loss-making, formerly state-owned flag carrier. The Tatas’ enthusiasm for winning back what was once the country’s iconic airline brand notwithstanding, the skies in which the industry operates have changed considerably. A look at the market share data from the domestic air passenger segment clearly shows that budget or low-cost flights now hold a dominant position, commanding about four-fifths of the market. The Tata group’s full-service venture, Vistara, with no less a partner than Singapore Airlines on board, has struggled to establish a foothold and with Air India’s addition, the Tatas find themselves saddled with a bulk of their combined domestic market share of 23% (as of November) being in the less-in-demand full-service segment. Nor is the group’s newly combined share from the low-cost segment, comprising Air Asia India’s 5.9% and the fractional share that Air India’s Air India Express has, significant enough at the moment to give it scale in the high-volume business. That the group is said to be considering consolidating Air India’s domestic low-cost services along with Air Asia India’s operations is a clear indication that the Tata bosses realise the need to optimise the varied aviation resources that are now in the group’s fold so as to enhance viability.

On the international front too, Air India faces multiple challenges, not the least of which is the Government’s current pandemic-related curbs on commercial international flights. With foreign carriers restricted to limited capacity under the ‘Air Transport Bubbles’ arrangement, Air India too has found itself constrained in the number of overseas flights it can operate under the bilateral arrangements with counterpart countries. The Tatas, though, could use the current curtailment of overseas services as an opportunity to undertake a long overdue overhaul of Air India’s inflight experience. Also, with Vistara now operating to a few select overseas destinations, the Tatas will need to decide if they would want a younger in-house competitor to Air India once COVID-19 restrictions are lifted and normalcy restored as regards international flights. For the Tata group, the choices going forward will need to be strategic. With the domestic market set to see more churn with at least one new budget airline set to enter and other rivals struggling for capital, the group needs to decide whether it wants to add capacity to budget offerings or stay a predominantly full-service carrier at a time when the more lucrative business class travel has been hit. And with aviation fuel costs set to soar further, Air India will need to tap into all of the Tata group’s vaunted managerial expertise if it is to turn into a successful buy.

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