On November 12, 2024, the Indian aviation industry will see a major shift with Vistara, a full-service airline jointly owned by Tata Group and Singapore Airlines, merging with Air India, which is also owned by Tata. This merger, after two years of planning, will make Air India the only full-service airline in India, ending the era of multiple full-service carriers.

This merger comes at a time when India’s aviation market is already growing rapidly. A report by OAG revealed that in May 2024, India surpassed both Brazil and Indonesia securing its position as the third-largest domestic aviation market in the world. IndiGo and Air India are the leading players in India’s aviation market, collectively having more than 1,000 aircraft on order. Together, they control nearly 90 per cent of the country’s domestic seating capacity. While the US and China still lead the global aviation markets, India’s rise highlights the rapid growth of the sector.

India’s aviation industry has been expanding at an extraordinary pace with the number of domestic seats growing at an annual rate of 6.9 per cent making it the fastest-growing market in the world. A key driver of this growth is the popularity of low-cost carriers, which make up 78.4 per cent of India’s domestic airline capacity, the highest among the world’s top five aviation markets.

The Indian aviation industry has changed a lot in recent years. In the past, full-service airlines were the main players offering things like luxury seating, delicious meals and entertainment. Before the merger, India had a mix of airlines including the now-defunct Kingfisher Airlines, Jet Airways and Air India. The downfall of Kingfisher in 2012 and the merger of Air Sahara with Jet Airways showed how difficult it was to make the full-service model work in a country where many people were looking for cheaper travel options.

A big turning point came in 2007 when Indian Airlines merged with Air India bringing the two national carriers together. But in 2012, when the Indian government allowed more foreign investment in airlines, new companies like AirAsia India and Vistara entered the market. These airlines, partly funded by foreign companies, changed the competition in India’s aviation industry.

Vistara, which started in 2015, was the newest airline in a market that was once dominated by a few full-service carriers. With the support of Singapore Airlines, Vistara offered top-quality service and aimed to attract passengers looking for a premium experience on domestic flights.

For Tata Group, which purchased Air India in 2021, merging with Vistara was the next logical step in its goal to build a strong airline group. By bringing Vistara into Air India, the airline’s network, fleet and services will be improved helping it compete better in India’s growing aviation market. Of course, there will be other challenges which may occur due to the integration that Air India will have to deal with.

Vistara is known for offering great service, flatbed seats and premium economy options, which make it popular with business travellers and those looking for a luxury flying experience. The challenge for Tata Group is to maintain these high standards while combining Vistara with Air India, which has often faced criticism for poor service, delayed flights and lost luggage. Tata will need to ensure Vistara’s customer-focussed approach is kept while also addressing Air India’s operational problems.

A key part of the merger is Singapore Airlines owning 25.1 per cent of the new airline, as it already owns 49 per cent of Vistara. This will provide the combined airline with extra funding and expertise particularly in managing international routes and improving Air India’s global reputation.

Led by IndiGo, the Indian low-cost carriers scene has seen rapid changes with an entirely new business format gripping the Indian aviation industry. Over the past decade, IndiGo has become the dominant airline in India, controlling a large portion of domestic routes. Its focus on affordable and efficient travel has made it the face of the low-cost revolution. As full-service carriers struggle to stay profitable, many are wondering: what does the future hold for full-service carriers in India?

The merger of Vistara with Air India is an effort to strengthen Air India’s position as the main full-service airline in the country. However, this move also reflects a global trend where the difference between full-service carriers and low-cost carriers is becoming less clear. For example, some low-cost carriers are starting to offer premium services like business-class seating, priority boarding and in-flight meals making it harder to tell the difference between the two models.

IndiGo’s recent introduction of a business class with its ‘IndiGoStretch’ offering is a good example of this trend. While Air India will still maintain its premium status, IndiGo’s move into the business class market shows that there is growing demand for affordable luxury in air travel. If successful, IndiGo’s business class could challenge Air India’s stronghold in this area, shrinking the space that full-service airlines once dominated.

For Tata Group, merging Vistara with Air India is part of a larger plan to improve and modernise the state-owned airline. With a combined fleet of 210 aircraft and over 470 more jets on order, Tata Group now has a strong position in both the domestic and international markets. But improving Air India will take more than just a bigger fleet—it will require changes in the company’s culture and operations.

Air India has struggled with problems like delayed flights, poor customer service and a lack of innovation. To succeed, Tata Group will need to fix these issues while keeping the high service standards that Vistara is known for. This merger is a chance to rebrand Air India as a modern, efficient airline that can compete with top airlines worldwide.

Additionally, the involvement of Singapore Airlines in the merged airline should help improve international service and expand Air India’s reach to more global destinations. With support from two major airlines, Air India could become a significant player in the international aviation market.

One of the biggest challenges after the merger will be managing customer expectations. Vistara’s loyal customers, who love the airline’s premium services, might worry that those services will be watered down after the merger. Also, with both Air India and IndiGo competing for market share, the competition in the Indian aviation industry is going to get tougher.

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One market, two models: How a Vistara-enhanced Air India will take on budget airlines like IndiGo