A mega-acquisition, an inevitable consolidation, and a brand's demise

Aditya Ghosh, ex-CEO and the man credited with IndiGo's turnaround, recently recounted a story of frugality when asked about the secret sauce for the airline business: "I had just spent a few hundred million dollars buying planes to enhance our fleet. Yet, for months, I debated a meager budget of Rs 4 lakhs to improve the crew's uniform fabric!" 

Indeed, brutal cost control is perhaps the most critical strategy to maintain a healthy airline business. Tata's decision to merge its two full-service airlines is surely the correct approach to making the business more efficient.

What's questionable is how Tata has dealt with the brands under consideration: Air India and Vistara. 

There's a simple principle to follow in M&A situations: do your best to avoid destroying value during the merger or acquisition processes. Isn't the fundamental aim and expectation of M&A to increase shareholder returns and fuel future business growth? However, the reality is that, as per an Interbrand and Harvard Business Review study, mergers have a failure rate of up to 85%, and studies have shown negative returns.

The reasons include unclear business and brand strategy, not understanding risks to current customer loyalties, overlooking cultural integration risks, and failure to identify brand equities and potential sources of growth. Tata needs to be careful of these pitfalls.

From the outside, it appears that Tata may struggle to migrate customer loyalties and brand equities as they merge Vistara into Air India.

Here's an example of how we successfully increased the value of the merged airlines' brand equity: When Chile's LAN and Brazil's TAM airlines merged in 2016, Interbrand's economic market sizing model gave them the confidence to make a bold move—dropping two highly successful national carriers and rebranding to a single unified voice.

This move aimed to create a striking new flagship showcasing the region's best for the world. The merged airlines retained and fused their LAN and TAM equities to create LATAM, symbolising their ownership of the region.

Since then, LATAM has successfully navigated an intense phase of brand implementation, successfully weathered a challenging pandemic, and emerged stronger, reimagining its role in each country where it operates.

The ambition was to establish LATAM as the airline group connecting Latin America with the world and vice versa. Drawing inspiration from the region's geography, LATAM symbolises not just a country but an entire region, proud of its origins. Despite pandemic challenges, LATAM has successfully resumed growth, recognised as the top South American airline according to Skytrax 2023, solidifying its role as a leading regional connector.

Given the palpable sense of loss many flyers, including myself, feel as Vistara's flights came to an abrupt halt—and Vistara's valiant efforts to remain upbeat, flaunting their accolades even in its dying years and months—questions about how Tata dealt with a promising brand's equity will remain.

Could it have done the migration better? Could it have found a way to retain the Vistara brand or at least some of its assets within Air India, at least for an interim period, to enable better protection and transference of Vistara's equity to Air India Vistara? Could it have done brand and cultural integration better?

There have been many good examples where parent or endorsing brands remained attached to the spin-off or acquired brand for a while, ensuring equity flow to strengthen early periods.

Nestle built Nescafe as Nestle's instant coffee for a while. Tata's successful retail brand, Tanishq, leaned heavily on Tata to build its early years. Jio, one of our larger branding projects in India, borrowed from Reliance's equity as RJIO for a few years before becoming an independent brand.

A year ago, we optimistically entertained an inquiry from Vistara for brand valuation-based guidance for its future. Unfortunately, conversations died down. The unleveraged equity of one of the rare and promising brand loves in recent Indian aviation history seems to be following suit.

(Our author, Ashish Mishra, is the CEO of Interbrand, India and South Asia)