Employee unrest clouds Tata Sons' ambitious Vistara-Air India merger

What initially appeared as a straightforward merger of Air Vistara Airlines with Air India has become a significant challenge for Tata Sons.

Soon after acquiring Air India, Tata Sons announced it would merge Air Vistara and AirAsia India into Air India. Analysts expected some resistance from Singapore Airlines, which owns a 49 per cent stake in Vistara, but that turned out to be the easy part.

Over 50 Vistara flights cancelled

Management did not expect stiff resistance from the employees, but that’s exactly what has played out. Over the last few days, Air Vistara has had to cancel over 50 flights (out of 300 daily) as employees went on mass leave, and at least 15 pilots resigned.

A merger between two airlines is never easy, even if both are part of the same group. Airlines have their own culture, ethos, and processes with which they have become comfortable. However, once the merger is announced, hundreds of issues that never existed before come up.

Pilots' concerns

First, let us examine the contours of the merger. The decision to merge Air Vistara and AirAsia India with Air India was announced in November 2022, with Air India Express being spun off as a separate entity. Next, to retain a stake in the merged entity, Singapore Airlines invested Rs 2,059 crore in Air India for a 25.1 per cent stake. According to Tata Sons, most of the clearances for the merger are expected to come through during the first half of 2024, while the operational merger is expected to happen by early 2025. Around 5,000 Vistara employees will be inducted into Air India in a phased manner.

The positive outcome of the merger was expected to be a better and more cost-effective deal from various vendors, a single airline starting off with a market share of around 20 per cent and the second largest after IndiGo, rationalisation of routes, and creation of a wider network, distribution, and sales platform to enhance cost structures and product offerings in relevant markets.

For example, Air Vistara has built a good reputation during the last few years, although its takeoff was initially not smooth. Vistara pilots believe that they will be short-changed once the merger takes place. They have also protested against the new contract, which gives Vistara pilots a fixed salary for 40 hours of flying instead of 70 hours earlier. It means that they will receive reduced salaries. They also suspect their seniority will be impacted once the merger occurs. The pilots want their seniority to be protected at all costs, as any changes there can hurt their paychecks immediately and the opportunity to grow in their careers.

According to some recent reports, nearly a decade after US Airways merged with America West, the pilots of the two airlines do not fly together.

Service quality

Regarding service, Air Vistara is way ahead of Air India because of its association with Singapore Airlines. Unfortunately, Air India’s reputation has dipped since Tata Sons took over the airline. Complaints are growing about the lack of good inflight service and because of constant cancellations and the attitude of the cabin crew.

If the merged airline fails to address service quality challenges, passengers who are used to Air Vistara's higher grade of service might start looking at other airlines.

Hence, this begs whether it is necessary to merge Vistara, a far better airline in terms of service quality, with Air India, an airline which struggles with legacy issues, a service quality that even the new management has been unable to upgrade. Vistara can remain a subsidiary with a separate management focus on domestic routes, while Air India can concentrate on international routes.

While promising on paper, this merger strategy also opens Pandora's box of integration challenges beyond employee discontent and cultural clashes. One of the primary concerns is the technological integration of different airline systems. Vistara, a relatively newer airline, employs more advanced reservation and operational systems than Air India. Harmonising these systems is critical for a seamless transition yet poses a significant challenge, requiring substantial investment and time.

Loyalty programmes

Furthermore, the customer loyalty programmes of the two airlines will need to be merged. Vistara's Club Vistara and Air India's Flying Returns cater to their respective customer bases with specific rewards and benefits. Integrating these programmes without alienating loyal customers of either airline demands careful planning and execution. The risk is that customers might feel short-changed if the benefits are diluted in the merged loyalty programme.

Another aspect that complicates the merger is fleet integration. Vistara operates a relatively young fleet with a mix of Airbus and Boeing aircraft, while Air India's fleet is older and more varied. Standardising the fleet post-merger will be a logistical challenge, affecting everything from pilot training to maintenance and spare parts inventory. It's not just about painting the planes in a new livery; it involves a comprehensive review and realignment of fleet strategy to optimise operational efficiency and cost.

Challenges of getting approvals

Moreover, regulatory approvals pose yet another hurdle. Despite Tata Sons' confidence in securing most clearances by the first half of 2024, the intricacies of antitrust laws and aviation regulations can delay the process. These approvals are crucial to ensure that the merger does not adversely affect market competition or lead to monopolistic practices, especially in a market as competitive as India's.

Lastly, the merger's success heavily relies on the merged entity's ability to maintain operational excellence during the transition period. Historical mergers have shown that operational disruptions during the integration phase can lead to customer dissatisfaction and loss of market share. Ensuring operational continuity while integrating the workforce, fleets, and systems is a monumental task that requires meticulous planning and execution.

While the merger of Vistara with Air India under the Tata Sons umbrella aims to create a formidable player in the aviation sector, the journey is fraught with challenges. Effectively addressing these concerns will enable the merged entity to leverage its combined strengths and realise the envisioned synergies. Failure to do so could jeopardise the merger's success and the combined airline's future competitiveness.