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Tata Group’s acquisition of Air India could hit expansion plans of rivals

Even as Air India is loss-making, its biggest strength is its international network

Representational image | Reuters

The Tata Group’s acquisition of state-owned Air India, an airline which JRD Tata had founded decades ago, will not only give new wings for the airline to soar higher, but is also going to force rival airlines to redraw their plans.

Air India has been loss making every year since it was merged with Indian Airlines in 2007-08. However, under the Tatas it could turn around with much needed cost cuts, fresh fund infusion and a renewed sales and marketing focus. Moreover, it still commands over 13 per cent market share, which coupled with Vistara, which had 8.3 per cent share in August, will give Tatas a formidable platform for a strong full-service brand.

Even as Air India is loss-making, its biggest strength is its international network, slots at major airports and offices in major cities, and there is no Indian airline that can even come close to it currently. Vistara, too, has started expanding overseas.

So, if Tatas can build a strong proposition, it could dent the plans of other airlines. A strong full service brand, focusing on service and on-time performance could wean away passengers from other airlines domestically as well as internationally over time, say analysts.

Indigo currently is the market leader with a share of 57 per cent in the domestic market in August, SpiceJet’s share stood at 8.7 per cent, Go Air had a share of 6.8 per cent, Air Asia India 5.2 per cent and TruJet 0.4 per cent, according to Directorate General of Civil Aviation data.

“While many people book flights looking for the cheapest fare, the growing aspirational middle class also will seek a better product, which Vistara had set to do. If Air India can reclaim its legacy and offer a great product with a consistent level of service, many more people will choose it to fly even if it’s at a slight premium and this will be a challenge for the low cost carriers in the next five years,” Vinamra Longani, head of operations at Sarin & Co., a law firm that specialises in aircraft leasing and finance told THE WEEK.

After starting flights to the neighbouring south, south east Asian and Gulf countries, Indigo and SpiceJet have also begun spreading their wings to countries beyond. In the last one year, SpiceJet has also expanded its cargo operations SpiceXpress. But, Air India plus Vistara could become a formidable force in the international segment.

“This is evident considering the network (7 of Vistara and 70 of Air India, without considering the overlap), wide body aircraft fleet (total 49, 2 of Vistara and 47 of Air India) and international market share of the combination. This entity can pose serious threat to the international long haul aspirations of IndiGo or the international cargo plans of SpiceJet,” said Ansuman Deb, analyst at ICICI Securities.

The international market share of Air India and Vistara combined up to July 2021 stood at 64 per cent, compared with Indigo’s 29 per cent and SpiceJet’s 7 per cent, according to ICICI Securities. Even in the domestic market, the Tatas will hold a strong 26 per cent market share with Air India, Vistara and Air Asia India combined.

Over the last decade, demand for international travel from India has grown rapidly. However, given that Air India was the sole player with a wide international reach and it too was unable to utilise its network to the full capacity due to continuous losses, foreign carriers like Emirates, Etihad and Singapore Airlines among others cashed in on the demand. Now, there is a potential to get some of this business back to India, and create more jobs in the country, with a strong player in the Tatas, says Jitender Bhargava, former executive director of Air India.  

Domestically though, it’s going to be a challenge for the smaller players. Longani of Sarin & Co. said the smaller players won’t really have a choice but to keep expanding if they are to remain competitive. “The pie is going to get bigger. So, the airlines will have to continue to add aircraft so that they stay relevant,” he said.

Bhargava sees an emergence of a few strong national players and a few who will do well in certain regions.

“In every country you have 2-3 major players. We will also get into same kind of a situation. You will have major national players or major regional players. You can’t have half a dozen airlines competing on every sector. That is not going to happen. You need few but strong airlines and not many, but weak airlines,” Bhargava told THE WEEK.

The Tatas’ acquisition of Air India comes at a time billionaire investor Rakesh Jhunjhunwala is starting a new ultra-low cost airline Akasa and Jet Airways, which was recently acquired by a consortium of Kalrock Capital and businessman Murari Lal Jalan, is also hoping to fly again in the next few months. It is clearly not going be easy for the newbies with a new formidable player in the Tatas.

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