The ongoing merger of Air India with Vistara, and AIX Connect theoretically creates a powerful competitor. However, this new entity faces numerous hurdles in its quest to overtake IndiGo.

While the revamped Air India plans substantial fleet expansion and bold revival strategies under its Vihaan.AI initiative, it remains to be seen whether these efforts will suffice to unseat IndiGo from its dominant market position.

The comparison came into sharper focus as it was announced Friday that Vistara's aircraft fleet would be operated by Air India from November this year.  

A Tough Nut To Crack

IndiGo currently commands an overwhelming 62 per cent share of the market pie in July this year, highlighting its near-monopoly status in the Indian domestic aviation market.

With 80.47 lakh passengers carried in July alone, IndiGo's scale is unmatched. And the merged Air India-Vistara-AIX Connect entity, despite being an extremely strong entity on paper, needs to significantly polish up its act if it wants to ratchet up from a current combined market share of just 28.8 per cent, which is a bit less than half of IndiGo's share.

This stark disparity underscores Air India's monumental task in trying to compete with IndiGo's entrenched position.

Moreover, IndiGo’s business model, which hinges on operational efficiency, low fares, and a vast network of routes, provides a significant competitive edge that will be difficult for Air India to undermine.

Even with Air India's planned fleet expansion, route additions, and service enhancements, catching up to IndiGo's scale and efficiency will remain a formidable challenge in the near to medium term.

The Vihaan.AI Plan: Ambitious But Realistic?

The Vihaan.AI plan, which aims to revitalise Air India over the next five years, is undoubtedly ambitious. The purchase of 470 new aircraft, including 140 wide-body planes, marks a significant step toward modernising Air India’s fleet and expanding its capacity.

However, the plan’s success hinges on seamless execution—a daunting task given Air India's history of operational inefficiencies and service lapses.

For example, in a recent case, the regulator, Directorate General of Civil Aviation, imposed a penalty of Rs 90 lakh on Air India in connection with a flight operated with non-qualified pilots, which is unprecedented for aviation watchers.

Air India just cannot afford to make such missteps if it wants to get anywhere close to IndiGo. 

While fleet expansion and route additions are crucial, they are not a panacea. The real challenge lies in integrating the diverse operational cultures of Air India, Vistara, and AIX Connect (which, along with Air India Express, will fly under a single air operator’s license from 2025).

The merger requires harmonising flight schedules, service protocols, and brand identities—a complex process that could lead to  initial disruptions and possible inefficiencies.

Furthermore, Air India’s reputation, tainted by years of subpar service and frequent delays, could undermine efforts to attract IndiGo's loyal customer base, particularly the price-sensitive travellers who make up the bulk of IndiGo’s clientele.

However, with Singapore Airlines as an equity partner, the combined entity will hopefully have a far better chance of attracting customers away from IndiGo. 

The Elephant In The Room

Air India's financial health is another area of concern. Despite the Tata Group's deep pockets and Singapore Airlines' Rs 2,059 crore investment, the merged entity will still grapple with a significant debt burden.

Balancing the need for investment in fleet expansion, service improvements, and operational efficiency while managing this debt is a complex juggling act that could strain the airline's financial viability. 

Achieving profitability in a market where IndiGo has perfected the art of low-cost, high-efficiency operations will require Air India to find a sustainable business model quickly—something it has historically struggled with.

IndiGo's established presence and cost-effective operations pose a significant barrier to Air India's aspirations. IndiGo’s aggressive international expansion plans and the introduction of business-class services this year further complicates the competitive landscape.

The entry of other players like Akasa Air and the potential resurgence of SpiceJet also adds to the competitive pressure, potentially diluting the impact of Air India’s efforts.

Air India is banking on premium product offerings, enhanced in-flight services, and international route expansion to differentiate itself. However, these strategies may only appeal to a niche market segment, leaving IndiGo’s core market of budget-conscious travelers largely untouched.

Moreover, while Air India's loyalty programs and branding initiatives, like the Air India Maharaja mascot, are creative, they may not sufficiently sway IndiGo’s extensive customer base.

Regulatory And Infrastructure Challenges

Navigating regulatory approvals and overcoming infrastructure constraints are additional hurdles that could impede Air India's progress.

The aviation sector in India is notoriously bureaucratic, and delays in regulatory approvals could disrupt the merger process and the rollout of new services. Additionally, the merged entity's growth will depend on airport infrastructure availability—another area where IndiGo has a head start.

While the merger of Air India and Vistara represents a significant step towards creating a stronger competitor against IndiGo, the challenges ahead are immense. 

The battle between these two giants will undoubtedly intensify, possibly giving customers not only more choices, but also lower pricing as the two go out of teir way to woo each other's customer base.

While Air India may carve out a larger market share and improve its standing, unseating IndiGo from its position as the market leader seems unlikely in the short haul.   but IndiGo remains the airline to beat in India’s skies for now.

(The writer is a Bengaluru-based financial analyst. Views expressed are personal.)