Indian Airline Industry Heading Towards Two-Pillar System, Says CAPA
India needs a high quality, dependable long haul and ultra-long haul airline to meet the air connectivity requirements, CAPA said.
Aviation consultancy and research firm CAPA India on Tuesday hinted that the domestic airline industry is heading towards duopoly following the merger of two full service carriers—Air India and Vistara.
It also said that the merger will bring corporate strength to the aviation sector which will have a positive impact on the entire ecosystem.
Earlier in the day, Tata group announced the merger of Vistara with Air India, and pursuant to the deal, which is expected to be completed by March 2024 subject to regulatory approvals. Singapore Airlines will have a 25.1% stake in Air India.
In a release, SIA said Vistara and Air India would be merged, and it would also be investing Rs 2,058.5 crore in Air India as part of the transaction.
"This would give SIA a 25.1% stake in an enlarged Air India group with a significant presence in all key market segments."
SIA said it intends to fully fund this investment with its internal cash resources, which stood at 17.5 billion Singapore dollars as of Sept. 30.
"The competitive dynamics in India are moving towards a two-pillar system around the Air India Group and IndiGo. The two carriers combined are in due course expected to achieve a domestic market share of 75-80%," CAPA India said in a statement.
In the international market they are expected to grow from 37.8% in the second quarter of the current fiscal to over 50%, it said and added that "this will redraw market and consumer power in the international arena back to Indian carriers, which has historically been dominated by foreign airlines."
India needs a high quality, dependable long haul and ultra-long haul airline to meet the country's air connectivity requirements. The combined entity is in line with India's aspirations to be a $5 trillion economy, CAPA stated.
According to the firm, over the next few years Air India is expected to emerge as a global network carrier in terms of size, scale and standards of service.
The combination of Tata Sons and Singapore Airlines will provide Air India with the requisite strategic expertise, industry capabilities, access to capital and determination to create an airline that India will be proud of.
Air India brand has been retained. CAPA believes that there is tremendous inherent value in the brand under the combined ownership and this will be a critical asset for the airline, it added.
Stating that there has been continuous improvement on the policy front, but if further reforms can be fast tracked, this will provide a powerful impetus to India's aviation system, CAPA said and emphasised that the confluence of world class entities on the corporate front, accompanied by fiscal (both direct and indirect taxes) and regulatory reforms, will enable India's true aviation potential to be realised in the medium to long term.
The acquisition of Air India by Tata Sons is the single largest and most significant reform since deregulation, which will have a much deeper structural impact than is envisaged at this point in time, it added.
Four airlines are part of the Tata group. They are Air India, Air India Express, AirAsia India and Vistara.
Tata group acquired Air India and Air India Express in January this year. Vistara started flying in January 2015. AirAsia India was launched in 2014, while Air India Express began operations back in 2005.