Vistara merger: That dreaded feeling!

Joseph Heller's iconic and satirical war novel lent the world the term Catch 22 to capture a paradoxical situation from which an individual cannot escape because of contradictory rules or limitations. Extend this today to full service airline Vistara's 5,000-plus workforce and it aptly captures their current predicament.

On the one hand, there is finally something to celebrate for the 10-year-old baby in the Tata stable. For the first time since inception and in eight years of flying, the airline claims it has earned its first small profit albeit in one quarter. It is EBITDA positive and has achieved a market share of just over 10%. Complaints were low, loads on aircraft high and it had good on-time performance. This is great news for all concerned as it appears to finally be getting somewhere.

Just as a ray of light is beginning to emerge in a long dark tunnel and some semblance was entering the airline's running and operations, there is a new spectre to deal with: the proposed merger with the erstwhile national carrier Air India, a done deal in which Vistara partner Singapore Airlines (SIA) will be taking a 25% stake.

This announcement has been greeted with much scepticism and a dreaded silence by several of the senior management and crew of the airline as Air India's reputation, despite its new owners, precedes itself. For almost all the airline's 5,000-odd employees, merger is a much dreaded word. As one senior commander who joined Vistara at inception bluntly puts it : "Who wants to become one with a madhouse," referring to Air India. Commanders, crew and many ground personnel argue that Vistara has its own culture, ethos and now a fairly respected brand, all of which this merger threatens to destroy. Many quote the disastrous merger of Air India and Indian Airlines to cite how mergers in aviation rarely work.

Necessity is the mother of invention and as resistance grows, a new idea has been floated within the carrier and some sections of employees that suggests that Air India could serve the Western side of the Indian subcontinent, which has been its strong point while Vistara with its parent backing from SIA would be best placed to serve the destinations that lie to the East. "This is another way the two airlines could be merged without creating a clash of cultures and avoiding all the problems that mergers typically lead to," argues a senior commander of the airline. He admits that with a full merger, employees know that two jobs will become one and this has led to a fair amount of uneasiness with the proposal.

Tata insiders dismissed the suggestion as "half baked and unworkable," arguing that this was an emotional response of self preservation rather than a viable business proposition. The merger, they said, was a "fait accompli" and the sooner the employees made peace with it, the better.

The apprehension in the airline's rank and file is understandable. From the word go in 2015 when it started flying, Vistara has been more like a confused child. Despite bringing in two senior aviation professionals from Singapore to head the carrier, the airline floundered in its initial years and failed to make any significant dent in the Indian aviation landscape. This was a disappointment to all concerned since the airline was started with high expectations given that it was combining the might of the Tata group in India and the expertise of Singapore Airlines (SIA). The runaway success many presumed proved elusive, proving cheerleaders quite wrong.

In the first phase, Vistara managed to get most things wrong: the model, the aircraft configuration, its cost structure and contracts entered into. Changes in aircraft configuration cost the airline dearly in terms of the consistency of the product. Fliers who have flown and liked the premium economy offering are miffed when they fly on another route and find the segment missing. Selling premium economy for shorter domestic hauls hasn't been a piece of cake either. In addition, Vistara's costs have almost consistently been close to 30% higher than rivals, according to industry sources, although the fares charged do not reflect this. For many years, frequency remained an issue. Many fliers who prefer Vistara are forced to fly IndiGo and other rivals due to flight timings and frequency.

Contrary to what one would expect, the pandemic and the floundering of rivals has worked to the advantage of the carrier. Led by a new team — CEO Vinod Kannan and CCO Deepak Rajawat started changing things from January 2022 — Vistara consolidated its position and strengths, even as rivals cut capacity to practically half their pre-pandemic levels.

In calendar year 2022, the airline added ten aircraft (eight A320Neo, one A321neo and one B787-9) and redelivered eight less efficient aircraft (six A320CEO and two B737-800NG) with a total operating fleet of 54 planes. Its international network grew by 180% with three new destinations and seven additional routes and it has added the A321LR (with 12 lie flat business seats and 24 premium economy) to its fleet more recently. It also doubled down on Mumbai as a secondary hub with increased international and domestic operations. The domestic network in the year grew by over 50% with two new destinations and six new routes.

With a larger fleet, more heft and a changed aviation environment post pandemic, course correction was also done in renegotiation of expensive contracts the airline had entered into in its early days, leading to significant cost reduction. A series of other steps have added to the stability of operations and in general, it has slowly emerged as the airline of choice for the non cost conscious passenger in India.

But this success has come at a cost too. Call it the nature of the beast or a fallout of the pandemic, Vistara, like all the other airlines, has struggled with an unhappier and unhappier employee pool. Complaints and allegations of transgression have risen, often targeted at the top management. Matters have reached a head with several staffers even speaking out publicly despite the management frowning heavily upon such actions. Internally, many issues remain unresolved which the airline is likely to have to tackle at some stage.

It is against this backdrop with many unresolved issues at a human resource level that the merger with Air India has been announced and it would not be wholly inaccurate to say that large sections of staff have been filled with a new feeling of dread and are unable to muster up any enthusiasm when asked about the proposal. For them, a marriage with Air India is like entering a new dark tunnel just as a ray of light was beginning to emerge.