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Tatas might do well to rope in Singapore Airlines to jointly run Air India

The Tata Sons’ winning bid for Air India has made the group owner of four airlines in all: Vistara, Air Asia, Air India and its low-cost arm Air India Express, which flies primarily on the Kerala-Gulf sector. (HT File) (HT_PRINT)Premium
The Tata Sons’ winning bid for Air India has made the group owner of four airlines in all: Vistara, Air Asia, Air India and its low-cost arm Air India Express, which flies primarily on the Kerala-Gulf sector. (HT File) (HT_PRINT)

  • Leveraging AI, SIA will be able to connect flyers from different parts of India to Singapore and then to the rest of the world, a network that SIA is very strong in

As Air India formally dons the Tata Sons colours, the expectation is that its initial owner will restore the airlines to its pre-nationalisation record of corporate excellence, global eminence and profitability. Tata Sons, of course, remains tight-lipped on its AI plans but right from the time Ratan Tata posted a tweet after the government finalized the sale to say, “The Tata Group winning the bid for Air India is great news! While admittedly it will take considerable effort to rebuild Air India, it will hopefully provide a very strong market opportunity to the Tata group's presence in the aviation industry", the aviation world is abuzz with reports on the hiring of people and other infrastructure being put in place.

The handover of Air India raises two important questions about the likely future course of action for Bombay House. The first of these concerns the presence of multiple, competing airlines in the Tatas stable. The Tata Sons’ winning bid for Air India has made the group owner of four airlines in all: Vistara, Air Asia, Air India and its low-cost arm Air India Express, which flies primarily on the Kerala-Gulf sector.

Tata Sons holds more than 70% stake in the low-cost airline, Air Asia. The group is in the process of buying out the remaining stake of the other promoter Tony Fernandes so that it can become its full owner. On buying out Fernandes’ share, Tatas are likely to merge the operations of Air Asia with those of Air India Express, reducing the total number of airlines owned to three. While there is no official word as yet about the group’s plans for Vistara, the chances are high that the Tatas will prefer to own and manage only one brand: AI. If that does happen, Vistara, a joint venture between the Tatas and Singapore Airlines (SIA), maybe subsumed into AI eventually, resulting in consolidated market presence for Air India, allowing to take on the private carrier, IndiGo, the largest player that commands a market share of over 57% in the domestic skies.

Then there’s the second question of whether SIA will come on board the Tata group’s plans for AI. This too is likely sooner rather than later. Two decades ago, SIA and Tata Sons had joined hands to bid for AI when the NDA government led by Prime Minister A. B. Vajpayee had first tried to sell a portion of the government’s shares in the airline. The NDA government was forced to abort the sale after all credible bidders, including the Tata-SIA combine, dropped out of the race for one reason or another.

The old ties have strengthened since then. Tata Sons and SIA co-own the full-service carrier Vistara in the 51:49% ratio. Over the last few years, in addition to its domestic flights, Vistara has expanded its international footprint to 10 destinations overseas. Given the long-term association, it won’t be surprising at all if the Tatas invite SIA on board for running Air India after gaining full control of the airline and the freedom to run it. Besides a history between the two, market forces are compelling for such a tie-up that can have clear benefits for the Tatas, SIA and AI.

SIA, one of the best-run airlines globally, can prove to be an ideal partner for turning around the bleeding AI. A stake in AI, a brand older and more widely and readily recognised in India and globally than Vistara, will allow SIA to tap into the promise of India’s aviation market. The lure of the domestic Indian air travel market for SIA cannot be understated. The only two air travel domestic markets to have shown rapid growth in recent years are India and China, the bright spots in a gloomy phase for aviation globally.

The International Air Transport Association (IATA) data shows that in October 2021, the latest month for which data is available, domestic air travel across countries was down 21.6% due to pandemic-related travel restrictions and consequent losses and hardships for airlines, compared to October 2019, when there was no pandemic and the reported growth was robust, driven largely by the Indian and Chinese flyers. Per-capita flights are projected to rise as more and more Indians start flying with incomes and the supply of aviation infrastructure set to grow. IATA maintains that international air travel will bounce back to the 2019 levels by 2024.

Then, Singapore, SIA’s single-city home base, can work well as a hub for the AI-SIA combine. Leveraging AI, SIA will be able to connect flyers from different parts of India to Singapore and then to the rest of the world, a network that SIA is very strong in. By 2023, the headcount in AI will have shrunk drastically, with over 2,000 employees due to retire by then, thus improving the staff-to-fleet ratio. AI may be close to take-off for a thrilling new journey. Please fasten your seat belts.

 

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