Successful integration of all Tata carriers critical to turning around Air India

As the initial euphoria following the successful handover of Air India to the Tata Group subsides, speculation has begun on how the salt-to-software conglomerate would turn around the national flag carrier. Whether the takeoff of the much-talked about privatisation is eventually successful will depend largely on a seamless integration of the group’s existing air carriers with the formerly government-owned airline, say experts.

 

Tata Group’s management control of Air India Ltd includes the full-service carrier Air India, its low-cost unit Air India Express, and a 50 per cent stake in the airline’s ground and cargo handling subsidiary, Air India SATS Airport Services (AISATS).

 

Air India’s new owner already operates the full service Vistara, a joint venture (JV) between the Tata Group and Singapore Airlines, and AirAsia, a JV between Tata Sons and Malaysia’s AirAsia Investment.

 

“The acquisition will be regarded as successful only if Tatas manage to integrate Air India and Air India Express with Vistara and AirAsia, and also if it manages to break even in the near future, in India’s hypercompetitive aviation sector,” said partner at the New Delhi-based law firm, DSK Legal, Harvinder Singh.

 

“With the handover, Tata Group now effectively manages four airline brands, each with a distinct profile, culture and cost base. Integration will involve looking at common systems, redundant capacity and costs, all done keeping in mind competition policy. The jury is out on whether the group will integrate all brands or follow a house of brands strategy,” said managing partner at aviation advisory AT-TV, Satyendra Pandey.

 

Founded by Jehangir Ratanji Dadabhoy Tata ‘JRD’ in 1932 as Tata Airlines, the airline was subsequently renamed Air India after World War II. In 1953, the Government of India acquired a majority stake in the airline with the passage of the Air Corporations Act. The airline was handed back to the Tata’s in a Rs 18,000 crore deal in late January.

 

Differing work ethos, inventory and management

If the fleets of the four carriers – Air India, Air India Express, Vistara and AirAsia – are consolidated, it comes to 233 Boeing and Airbus aircraft in varying configurations. In sheer numbers, this is second only to the all-Airbus fleet of the country’s largest airline IndiGo, which operates 282 aircraft. The 35 ATR 72-600 turbo props flown by IndiGo are again manufactured by an Airbus of France and Leonardo of Italy’s JV company.

 

“The Tatas now have multiple airlines, with each competing for market share. Each company has a different work ethos, different models of aircraft, three setups of engineering, logistics, inventory, operations, marketing and finance, and several CEOs and boards. You cannot create anything more complex or costly,” founder of the country’s first low-cost carrier (LCC) Air Deccan, Captain GR Gopinath told Business Today.

 

Captain Gopinath should know for he had faced a similar challenge in the past: a disastrous merger of Air Deccan and UB Group chairman Vijay Mallya’s full-service Kingfisher Airlines.

 

Despite initially agreeing to retain the Air Deccan brand for domestic routes and operate Kingfisher Airlines with its entire complement of services on international routes, Mallya created Kingfisher Airlines as a full service plus model and converted Air Deccan into Kingfisher Red, after throwing in a lot of freebies like catering.

 

“Cost-conscious economy passengers migrated from Kingfisher Airlines to Kingfisher Red. Those who found Kingfisher Red expensive shifted to Indigo and SpiceJet. Net result, both the airlines were soon in the red,” quipped Captain Gopinath.

 

In what is now widely regarded as a case study in ill-conceived integration, the move resulted in both airlines to eventually cease operations.

 

Vistara, AirAsia in continued losses

The other challenge before Tatas is that both Vistara and AirAsia India are yet to make money. Launched in January 2015, Vistara registered a loss of Rs 1,611.57 crore in FY20-21. Although this was lower compared to the Rs 1,813.39 loss recorded in the previous year. Launched a year ahead of Vistara, AirAsia saw its losses balloon from Rs 782.30 crore in FY19-20 to Rs 1,532.32 in FY20-21.

 

Market analysts attribute the losses suffered by Vistara and AirAsia to their limited aircraft fleets and the fact that Vistara primarily services metro cities, while Air Aisa operates on regional routes.

 

“Consequently, both carriers have largely been operating in silos. It takes time to win customer confidence and Vistara and Air Asia have managed to establish their credentials. The Air India acquisition will provide Tata Group to operate its airline business with more flexibility, which should ultimately result in profitable operations,” said managing director, KRChoksey Holdings, Deven Choksey.

 

The integration will, therefore, needs to be planned well after duly taking into consideration the synergies and discords between the airline brands.

 

“Integration of the four airlines will need to be a well thought out strategy. The full-service airlines and the low-cost carrier (LCC) can individually be merged together. There is a lot of synergy that can be tapped into by merging Vistara with Air India and AirAsia with Air India Express, but all of this is expected to happen only in the medium term. In the near term, we should see these operate independently,” said, practice leader & director, transport and logistics at CRISIL Infrastructure Advisory, Jagannarayan Padmanabhan.

 

Air India’s 100-day plan for improvement

A proposed integration would also call for a thorough revamp of service standards at Air India. The Tata Group has committed to spend significantly on improving brand Air India. Work is already underway on a 100-day plan to address areas of immediate concern like the airline’s on time performance (OTP), call centres and a quick redressal of passenger complaints.

 

“A product overhaul will be critical to Air India’s success. And if the hospitality sector is any indication, India can compete with the best. There is also the fact that post pandemic behavior may see a preference for direct flights effectively bypassing hubs. The loyalty program may also require a rethink,” observed AT-TV’s Pandey.

 

“Finally, there is the element of tradition. The Air India brand does have a high recall value but for all the wrong reasons. Fixing this to a point where it starts to command a premium will be a key focus area,” he added.

 

The Tata Group has reportedly formed a large committee to significantly ramp up Air India services as part of the 100-day plan and made a senior-level hire in the airline’s human resources team to build synergies. Furthermore, the tie-up with SIA for Vistara has already given the Tatas an experience of offering a premium product. This will likely come in handy once an integrated Air India starts connecting rural and upcountry services to its metro and international routes.

 

“Presently, the Tatas have not fully exploited their ability to offer a premium product. Once that happens post successful integration of Air India, it would be a real game changer on especially the long duration international flights,” said Choksey.

 

Whatever the experts might say, the general consensus among Air India employees is that the Tatas should be able to revive the fortunes of Air India. Prior to the handover, keeping the airline afloat was costing the exchequer Rs 20 crore daily, the Central Government had informed the Delhi High Court in January.

 

“These days while making the welcome announcement, most of us make it a point to round it off with the phrase, ‘Tata Air India’. Most of us expect the company to soar high under the new management,” a 30-something pilot with the airline declared requesting anonymity.

 

It had better work out that way. A successful turnaround at Air India will serve as an emblem for the success of India’s ambitious privatisation exercise in the coming decades.

 

(With inputs from Rahul Oberoi)
 

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