Tata Group to Consolidate Airlines Under a Single Entity

5paisa Research Team 5paisa Research Team 10th December 2022 - 03:18 am

Almost 73 years after Air India (formerly Tata Airlines) was taken away from the Tatas, the Tatas may be again chasing their dream of a consolidated national airline. The bidding for Air India is not over and Tata Group, Ajay Singh of SpiceJet and few PE funds are in the fray.

The verdict is not yet out, but the market is excited about the likely impact of a consolidated Tata airline. After the demise of Kingfisher and Jet Airways, there has been no competitive airline market in India.
If the Tatas win the bid for Air India, they could look at consolidation of airline interests under one head. Tata Sons currently holds 83.67% in Air Asia with the balance 16.33% held by Air Asia Malaysia Bhd, which plans to exit India fully by May 2022.

This stake in Air Asia India will be sold to the Tatas for $18 million. Of course, in the case of Vistara, Singapore Airlines owns 49% with Tata Sons holding the balance. Here the buy-in of Singapore Airlines will be required.

Why does the consolidation make business sense? If you look at the market share of airlines in India, the 3-month rolling average is 56% for Indigo, 12.5% each for Air India & Spice Jet, 9% for Vistara, 5.8% for Air Asia and 3.2% for Go Air.

Apart from Indigo, which leads the Indian market with its LCC model, other market shares are too dispersed. If the Tatas combine Vistara, Air Asia and Air India (subject to winning the bid), then the Tatas get a combined 27-28% of the Indian aviation traffic.

This puts them in a sweet spot to take on the leader, Indigo Airlines. Also, Tata Airlines will be the only airline to offer the complete bouquet of LCC and full service airlines under a consolidated banner. As part of its plan, the Tatas would like to get the buy-in of Singapore Airlines and also get them to partner the combined venture.

When Cathay Pacific, Thai Airways and Singapore Airline wanted to benchmark themselves on airline service standards 50 years ago, it was Air India, under JRD Tata, that they turned to. It is perhaps time to revive some of the glory.