Rumblings from Vistara-Air India merger

Last week was a forgettable one for Vistara, the 10 year old baby of Tata and Singapore Airlines (SIA) that took to the skies in 2015. The airline witnessed a spate of cancellations as many of its disgruntled pilots - commanders and first officers - called in sick at the last minute, failed to show up for scheduled flights and generally played hooky. Around 20 percent of its 350-odd flights were cancelled on a daily basis, throwing the airline’s operations into disarray and attracting the ire of inconvenienced passengers.

The hullabaloo was enough to stir the civil aviation minister into seeking an explanation from the airline. Sources in the airline claim the carrier had also witnessed a spate of resignations from pilots - over 40 since the merger news broke out and over a dozen from pilots due to the recent troubles but this was not confirmed by the airline spokesperson. Subsequently, Vistara announced it was scaling down its daily operations : reducing daily flights from 350-odd by 10%, till matters were brought under control.

This was perhaps the first warning sign of the shape of things to come. Vistara heads into more turbulence as it merges with the erstwhile national carrier Air India. This remains a dreaded moment for Vistara staffers, one that was to culminate in March 2024 as per a previous Tata announcement in November 2022, but was subsequently postponed to 2025. The 51:49 joint venture between Tata-SIA was established in 2013. As part of the merger transaction, SIA is expected to invest ₹2,059 crore and hold 25.1% stake in Air India.

As Air India proceeds with the merger, it has no option but to ruffle many feathers. Pilots and first officers of Vistara are currently protesting on salary and seniority issues and while this might be temporary and resolved soon, the merger remains a highly unpopular move in the Vistara stable.

In response to detailed questions, the airline spokesperson says the airline has been tackling the immediate crisis on a "war footing". He says Vistara continues to hire more pilots and has carefully scaled down operations by around 25-30 flights per day, taking the airline back to the same level of flight operations as at the end of February 2024. "This creates the much-needed resilience in the rosters. The cancellations have been done mostly on our domestic network and much ahead of time to minimise inconvenience to customers," he says. Furthermore, larger aircraft like the B787-9 Dreamliner and A321neo aircraft have been deployed on select domestic routes to accommodate more customers, wherever possible.

Merger Jitters

Ever since the merger was announced, the airline has been losing its best talent. Employees- crew, ground and office staff - those uncomfortable with change or a merger with Air India (not considered the gold standard among airlines in India) and in a position strong enough to find alternatives are doing so especially as the entire 6,500-odd workforce of Vistara is unlikely to be fully absorbed. Some layoffs are inevitable and while jobs in the aviation sector in India in general have shrunk since the pandemic, opportunities have opened up in the Middle East and Dubai. So those who can find alternatives in airlines or even outside it are doing so.

That the entire Vistara staff will not or cannot be absorbed into Air India is well known especially since the parent company too has been on a hiring spree, having added over 6,000 new staffers in 2023-24 alone. Therefore, some voluntary exits from Vistara are welcome. "If we were to simply add the two, the employee count would far exceed what the doctor advises or what the fleet requires," explains a Tata insider. Air India too recently let go of almost 200 employees (non-flying staff) on grounds of poor performance.

While an exit at this stage for certain employees makes sense from an employability point of view, for the carrier and for the merged entity, it is bad news as it is losing its more valuable talent (those who are competent enough to find other jobs). "Those who are competent enough at their jobs have found alternatives. A slow but steady stream of exits has begun," says an airline commander. A Vistara spokesperson says there hasn't been any unusual spike in attrition since the merger announcement in November 2022 or in recent months. "In fact, our employee strength has only grown by over 30% since then and we continue to hire more staff including pilots, to support our growth. Our employee strength, as of today, is almost 6,500," he adds.

As a result of the recent face off between the pilots and management, a few A320 commanders have left, something neither Vistara nor Air India would be happy about in the present crew drought scenario. The airline refrains from sharing any numbers but says that almost all the pilots had accepted the new contracts, terms and conditions and it was working with the remaining to iron out these issues.

Industry experts and insiders however maintain that the airline might have lost some of its best talent already. "What remains typically in these situations is the deadwood," says a former Jet chief, who watched a similar situation build up in Jet when its troubles began : those who could find good, viable alternatives were the first to abandon what was looking more and more like a sinking ship as the days went by.

In 2022, some employees - more as a last hope- floated the idea that Air India could serve the Western side of the Indian subcontinent, which has been its strong point while Vistara with its parent backing from SIA would be best placed to serve the destinations that lie to the East, a suggestion that found little resonance or support.

A recent Linkedin post by Ashwini Lohani, former Air India CMD blames the problems of the erstwhile national carrier primarily on the "ill fated" merger between Air India and Indian Airlines. He argues that while the airlines went through the "motions of a merger", the real merger failed to happen as "their hearts failed to merge".

Aviation experts reinforce the point and argue that pulling off a successful merger is easier said than done: aviation history globally is littered with examples of mergers that have been mostly unsuccessful or quite painful. "To pull off something like a Delta Northwest kind of merger requires the mettle and skill of someone like Richard Anderson," says a former Jet top management team member, who says this merger for him is the “gold standard” in aviation mergers. Although United Airlines and Continental’s merger has proved to be a success in the end, the integration to his mind was not as pain free and smooth as the former.

Loyal Fliers Say Nay

If those within the airline are filled with dread and a “bad feeling” as some put it, those outside it but vested are equally wary. A loyal base of fliers is closely watching with dread what they perceive to be the killing of a brand they had come to trust and prefer.

As a full service carrier, the airline has been working to build a full loyalty programme and has a number of undisclosed platinum, gold and silver members, which the company said grew 18% year on year. This small but growing set is also watching the developments keenly as many of them remain wary, refuse or are loath to fly any other airline including IndiGo, which has slowly become the airline to avoid for many. The jury is out on whether this is a reflection only of its bigger size which makes operations complex and complaints magnified or whether it is arrogance creeping into India’s most successful private airline but a steadily growing number label IndiGo as their last choice. Pramath Sinha, former dean of ISB and founder of the Vedica Scholars programme says that he doesn’t find much to choose between the service levels of IndiGo and Vistara but the latter is more timely and reliable as and when it is available on the route he requires. For many frequent fliers like him, frequency with Vistara remains an issue. This cohort who prefer Vistara are forced to fly IndiGo and other rivals due to flight timings and frequency.

Price agnostic fliers who fly business argue that the merger of the two should only happen when Air India business class can charge the same fare a Vistara business does. "Tatas should keep Vistara separate from Air India until they can charge a premium for quality and comparable fares. Business class fare on Vistara is almost 50% higher than Air India today. When Air India can command the same, they can proceed with merger," argues one gold member of the Vistara loyalty programme. He says that it might be better for the Tatas to keep both brands going and migrate employees and aircraft that qualify to Vistara and merge the rest into one big low fare carrier that competes with the likes of IndiGo and SpiceJet, since “organic growth is better than acquiring a dud”.

A lot of Vistara’s loyalty programme fliers are not price or even day and time conscious and can usually and often do vary their travel schedules to match Vistara’s. Delhi-based infrastructure consultant Abhijit Bhaumik, a platinum member who flies economy for less than two hours, premium economy for 2 to 3 hours and business for travel over 3 hours, feels the idea of a merger should be dropped altogether as the “chain is as strong as its weakest link”.

Ever since the news of the merger broke out, many platinum and gold fliers have been saying that instead of Vistara’s superior service influencing Air India, the former’s poor service levels appear to be creeping into Vistara, like a bad flu spreading! Whether this is a reflection of the dejected environment at Vistara or its better staffers exits, service levels appear to be emulating Air India’s instead of the more desirable outcome of Vistara’s rub off on Air India!

Business Imperatives

Viewed from the Tata point of view, bigger issues remain on the table and are at stake. Despite its reasonable success in making a distinction in its service levels vis a vis the low fare players, Vistara as a business has never delivered on the bottomline, as its costs have almost consistently been close to 30% higher than rivals while fares charged do not fully compensate. Although losses are narrowing, it remains primarily in the red. Accumulated losses over the years as per sources are in excess of ₹9,000 crore (till FY 2023). Many Tata insiders are convinced that the only way the business can be turned around eventually is by merging the two and therefore the merger is a “fait accompli”, whether anyone likes it or not.

For fliers and readers, the only certainty is that as 2025 approaches the last word has not yet been said on this matter and more turbulence can be expected from the Vistara corner. The skies are far from clear.