GURUGRAM- Tata Group will benefit from the Air India (AI) and Vistara (UK) merger that will begin with Vistara’s last flight today (November 11, 2024).
The source reported to Hindu Businessline that the merger is set to generate annual savings exceeding ₹500 crore, primarily driven by renegotiated contracts in operations, fuel, lounges, ground infrastructure, and catering.
Air India Vistara Merger Benefits
Since its Tata takeover of Air India, the management has made significant steps to revive the carrier and retain the brand. This merger is part of Air India’s five-year “Vihaan.AI” transformation strategy.
The airline has completed the initial “Taxi” and “Take-off” phases and entered the “Climb” phase this year, focusing on full integration with Vistara, enhancing customer value, and driving profitability.
A key objective of this merger is to align with Air India’s “Road to Profitability” strategy, with a target to achieve profitability by FY27. The integration with Vistara is central to reaching an anticipated cost savings of 1,800 crore INR by FY27.
The estimated annual savings of 500 crore INR is expected to significantly boost Air India’s financial performance in the high-cost aviation sector. The merger enables streamlined operations and reduced redundancies, critical for efficiency and cost control.
The combined airline will be better equipped to handle industry pressures, including volatile fuel prices and competitive forces in both domestic and international markets, sources told Businessline.
Since its launch 10 years ago, Vistara has not reported profit. However, in Q3 2022, Vistara reported $1 billion in earnings and net profit excluding the foreign currency loss and non-operating revenue it did not disclose the exact figure.
The merger of Air India and Vistara enables the consolidated airline to negotiate bulk procurement at improved rates, boosting cost efficiency across operations.
Road to Profitability
Both airlines have struggled to achieve profitability individually, but the merged entity, with expanded domestic and international reach, aims to turn profitable by FY27.
Sources told Hindu Businessline that cost savings will establish financial discipline, paving the way for sustainable profitability. This will support reinvestment in fleet expansion, customer service, and technology.
Air India has assured that the Vistara experience will remain intact for customers during the integration, as it upgrades Air India’s legacy narrowbody fleet, a process expected to complete by mid-2025.
My Take
The target to achieve profitability by 2027 looks ambitious, both airlines have been bleeding money and they really need to optimize their operations.
I think Singapore Airlines (SQ) or SIA management will play a vital role post-merger as they have strong experience in running the best and world-class full-service carrier. The SIA CEO Goh Choon Phong will be on board and this will further improve the carrier’s overall growth. Singapore Airlines has a 25.1% stake in the merged entity.
Also, Air India will need to reduce its flight cancellations and improve load factors by not competing with each other. Yes before the merger Air India and Vistara were actually the rival carriers competing in the already highly competitive market.
However, after the merger, Air India will face no competition in the full-service segment as it’s now the sole FSC.
Also Read, Air India Management Shuffle Ahead of Vistara Merger, New Fly Prior
A recent example is Air India will no longer serve Delhi to Hong Kong (HKG) but will still provide service to passengers with Vistara’s existing flights.
Similarly, Air India and Air India Express (IX) will also not compete on low-demand routes. Air India Express will act as a feeder carrier to Air India which will bring passengers from tier 2 and 3 cities to metro hubs. Then Air India will fly them on metro-to-metro routes and also internationally.
Many such benefits will be seen post-merger, so yes it’s actually a win-win for Air India and Vistara’s finance sheet.
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