Air India + AirAsia India: What buying the govt airline means for Tata and its low-cost aviation ambitions

The first part of the series took a look at what it means for the Tata group to buy Air India and its impact on Vistara. This installment will look at how important Air India could be for the sustenance of AirAsia India.

The Tatas re-entered aviation by partnering Malaysia’s AirAsia. Vistara,  the joint venture with Singapore Airlines, took shape later. Since inception, AirAsia India has been that kid on the block that flattered to deceive. While AirAsia India battles multiple investigations, it continues to await for approvals to fly international, even when it now satisfies the revised rule of 0/20 i.e. having a minimum 20 aircraft in fleet to be eligible to fly international.

AirAsia India has always harboured ambitions of flying international and over five years into the operation, is yet to get approvals. Ironically, AirAsia India started registering aircraft after IATA codes of cities and it has planes that are registered VT-PNQ, VT-DEL, VT-BLR. The airline now has aircraft registered with airport codes of Kuala Lumpur, Hong Kong, Male and more but remains restricted to Indian skies.

Amidst the summons for AirAsia top management to appear in front of multiple investigating authorities, reports have indicated that the Tata group will gain full control of AirAsia India.

Air India is being offered with Air India Express, the low-cost subsidiary of Air India that operates a fleet of B737-800s and has a primary focus on international routes. Between the flying arms of Air India, the Air India Express arm is the strongest, raking in consistent profits. AirAsia India missed the bus after the fall of Jet Airways when every airline got additional bilateral rights. Can AirAsia India piggy back on Air India express?

AirAsia India is yet to turn in a profit. Securing Air India Express gives it bilateral rights and slots. Assuming that the airline will act as a feeder to its expansive network of sister airlines in Malaysia and Thailand, the AirAsia India-Air India Express combine could work wonders to have a functional hub in Bengaluru, Hyderabad or Chennai to offer connections from Middle East to South East, in addition to strong demand to the middle east from Kerala and to Malaysia, Singapore and Thailand from other parts of the country. A merger with Air India Express and surrendering of Air Operating Permit (AOP) for AirAsia India could possibly make the case against the airline null and void in the guise of buying Air India.

While the fleet of Vistara and Air India gels well, the same is not true for AirAsia India and Air India express. One operates an all A320 fleet while the other operates an all B737-800 fleet. Incidentally, both do not operate the latest-generation aircraft from respective manufacturers – the A320neo family or the B737 MAX.

While the fleet mix could complicate things, there have been airlines world over that have transitioned from one fleet to another. In fact, AirAsia Berhad inherited Boeing when its founder Tony Fernandes purchased the airline for 1 Malaysian Ringgit. Today AirAsia group is one of the marquee clients of Airbus.

While the number of Boeing planes were few then, Silk Air is in the process of transitioning from Airbus A320 to Boeing B737 series. The transition may be rare, but is not unheard.

A couple of scenarios could evolve for Air India in its currently available form to come under the TATA stable.

Scenario 1: A consortium of Tata, Singapore Airlines and AirAsia Berhad is formed to bid for Air India, resulting in two airlines – a full-service carrier (FSC) which comprises Air India and Vistara, and a low-cost carrier (LCC) which comprises of Air India Express and AirAsia India. The expertise of SIA is utilised to stabilise and grow Air India and there is a slow transition or merger between Air India Express and AirAsia India.

Scenario 2: In the prevalent scenario where, deteriorating India–Malaysia relations and repeated summons to former board members of Air Asia India is being ignored, the Tata group looks at buying out the 49 percent stake of AirAsia Berhad in AirAsia India and eventually having total ownership of AirAsia India. Thereafter, it merges with Air India Express. The AirAsia group exited its Japanese venture in the past but returned to Japan a couple of years later, where it now operates with a different partner.

Scenario 3: Only the Tata group bids and wins Air India and after the mandatory period as stipulated, merges Air India with Vistara and Air India Express with AirAsia India keeping the current Joint Venture structures intact with partners.

Air India or not, the two-brand strategy for Tata group is always going to be a challenge – especially in India where the costs differ but fares do not. Similar experimentation in the hospitality space hasn’t quite worked well for the group.

As a group, the Tatas have explored a multi-brand strategy and segmentation with Indian Hotels Company, which runs the Taj Hotels. From Ginger – the low-cost offering to Taj Mahal Palace and Resorts – the premium offering, the group has a wide spectrum. At a time, the group had multiple brands in the Taj portfolio as well, which over a period it had to re-rationalise.

Will a similar strategy continue for aviation, or will a mega-merger happen between the current two brands of the group and more if it shows interest and wins bid for Air India?

Anything at this stage is purely speculative — as speculative as it was the last time when the airline did not receive any interest. With elections just around the corner last time, the government aborted its attempt to sell the airline. Air India has its own challenges, including unions. But the Tata group, with a rich legacy and good industrial relations, could well be the entity that the unions may accept.

For the Tatas or any other bidder, the ability to navigate the corridors of power and show patience towards possible litigation from multiple quarters could be the deal-maker or breaker. While Air India has been accused of being over-staffed, there is no denying the fact that there are some wonderful people who work for the airline – who are no less talented than their counterparts in private airlines. Sometimes a change in management and freedom spurs up performance and people’s performance spikes.

Air India has been battling losses for many years. The airline has also seen grounding of its aircraft, presumably due to lack of cash.

For the Tatas, it is easier to revamp, refurbish and re-configure the existing planes that aren’t very old than look for planes, expand and battle it out with Air India – controlled by somebody else along with other European and Middle Eastern carriers.