Market Mix - Vistara-Air India Merger: Will It Work?

Good morning. The inevitable has finally happened. A less than a decade after its launch, Vistara will soon be history with the owners, the Tatas, merging the airline with Air India. While it makes business sense to merge the two operations, drive synergy and reduce costs, will the combined entity be able to retain Vistara’s loyal passengers and provide consistent service?

Meanwhile, in its 47th annual general meeting last week, Reliance Industries outlined its plans to invest in green technologies including electrolysers to produce green hydrogen. But would the conglomerate be better off, if it waited for rapidly evolving technologies to mature before jumping in? Read on. 

In other news, the crisis in Bangladesh could mean more business for apparel manufacturers in India, and auto companies aren’t doing so well. 

THE TAKE

Grin and bear it.

Mergers or acquisitions are not new in the Indian landscape. But few have been or will be as public and consumer facing as Air India and Vistara, least for the social media noise the inevitable problems could create.

Products and services have seen owners change all the time in India. That could range from soaps and medicines to cement and steel. Services could include hotels to even airlines, like Kingfisher buying Air Deccan or Jet buying Sahara Airlines. Both fairly large deals for their time were announced in 2007 and both acquirer and obviously acquired airlines have since shut down.

Air India has announced Vistara will cease to exist in its current form from November 12 this year, a logical culmination of a process that started in November 2022. Tatas now own Air India and there was not much logic in continuing two separate brands and airlines from a management point of view.

The Tatas owned 51% while Singapore Airlines owned 49% in Vistara and as the merger goes through by year end, Singapore Airlines will own around 25% in the combined entity which includes Air India and Vistara.

But it cannot be denied that there is a sharp difference between the two products. Vistara is more premium and preferred by business travellers. Air India is less premium and preferred more by leisure travellers and also an airline that many people actively avoid at all costs, particularly international, though its a full service carrier, serving hot meals as compared to an Indigo, where food is pre-ordered and paid for.

The premiumness can be subjective of course but the fares reflect the difference. Business class fares on the two airlines on a Mumbai - Delhi sector could vary by more than 50% or even more at times at similar departure times. Though I can sense that the airlines are synchronising fares increasingly. 

And that is a problem. Like for like, the experience on most Air India flights is not the same, even if the aircraft is newer, like the Airbus A350 on some domestic routes, though that does help balance things out somewhat.

But what can the merged airline do? 

To quote a simple example, boarding procedures on Air India are totally random and chaotic, almost like the good old days, while Vistara is orderly and disciplined. For business travellers this matters, who also by the way, do not pay so much importance to food, as long as the airline is competent.

Vistara flies to quite a few international destinations, east and west of India and once again, the experience can be dramatically different. You could be on an ageing, battered and rattling Air India A320 and a quiet and well turned out A321, both to Singapore, leaving an hour or so apart from Mumbai. 

All this means that Air India will have a massive problem managing the transition and while it intends to have as many new aircraft as possible, the interim period will be like Russian roulette for passengers, particularly if there is no choice of aircraft. 

And while that is something the Tatas cannot control - I still understand the management imperative to merge - hopefully it will communicate much better and focus literally half its energy on that.

Maybe the pain will not last long.

JANUS VIEW

Turquoise Might Be A Better Colour For Renewable Energy Than Green

Reliance Industries held its annual general meeting (AGM) last Thursday. The likely announcement of a bonus share issue, for one, has cornered attention. But shareholders and others should pay attention to the plans to invest heavily in solar panels, green power, lithium ion and sodium ion batteries, fuel cells and large-scale manufacture of electrolysers to split water and produce hydrogen.

In 2021, RIL had announced a plan to produce green hydrogen at a price of $1 a kg, at a time, when the Biden administration had proposed a subsidy of $6 a kg to produce green hydrogen. The good thing is that RIL is proceeding along this path in phases. The bad news is that it is sticking to that vision outlined in 2021.

Instead of locking itself into electrolysers and storage batteries on a gargantuan scale, RIL should watch relevant pyrolysis technologies evolve and mature, and decide its route to clean energy.

CORE NUMBER

14.96 billion

This is how many unified payments interface (UPI) transactions took place in August, up 3% from 14.44 billion in July. This is the highest number of monthly transactions since UPI became operational in 2016. However, in terms of value, this month saw a slight dip to Rs 20.61 trillion compared from Rs 20.64 trillion in July. Overall, UPI has seen a year-on-year growth of 41% in volume and 31% in value.

FROM THE PERIPHERY

—👚 India’s garmenting businesses could attract more business from global firms as neighbouring Bangladesh faces political turmoil. Raymond’s chairman and managing director Gautam Singhania said that the textiles and apparel company has received a number of inquiries from global firms and he expects shifting of some garmenting business to India. He also added that though labour in India is more expensive, Indian companies like Raymond have fabric supply as well, unlike Bangladesh. 

—🍿 PVR-Inox is planning to close down 60-70 non-performing screens this fiscal year, while opening 120 new screens, as it reworks its growth strategy. It will also plan potential monetisation of non-core real estate assets in prime locations like Mumbai, Pune and Vadodara. About 40% of the new screens being added will be in the lesser penetrated South India, according to its latest annual report. The multiplex operator is planning to reduce its capex on new screen addition this fiscal year. 

—📳 HDFC Bank has taken a ‘temporary break’ from its tie-up with Apple, after a five-year collaboration. A senior official of the bank said that the decision came after a cost-to-income review of the partnership, which involved instant cashbacks and EMI for Apple products purchased on HDFC credit cards. Since their partnership, Apple has also signed on other bank partners, including ICICI Bank and Axis Bank. 

—🚗 After reports of a record inventory backlog at car dealerships, two auto market leaders saw a dip in sales this month. Maruti Suzuki saw an overall 3.9% year-on-year drop in sales in August fuelled by falling sales in the small car segment. Sales in this segment declined 18.85% to 68,699 units in August 2024. Tata Motors reported an 8% on-year drop in overall sales in August. Its passenger vehicle sales fell 3% year-on-year to 44,142 units last month.

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