How Vistara, India's best airline, flew into turbulent air?

The recent crisis, which has been brewing for many months, seems to have stemmed from the airlines’ pilots deciding to take leave en masse, as Vistara tries to merge its business with Air India, the airline that the Tata group acquired in 2021. The Tata group is merging Air India and Vistara into a single entity, for which the country’s competition commission had given conditional approval. The group is looking to complete the merger next year, after which the merged entity will function as the only full-service carrier in India, the world’s fastest-growing civil aviation market.  

As part of the transition, the two airlines were brought under a uniform pay structure in March. Under the new structure, Vistara pilots will get a fixed salary for 40 hours of flying instead of the previous 70 hours. They will also receive payment for extra flying hours.

“It seems a lot of confusion about the merger process and ‘who is in charge’ situations have emerged in different departments, which might also be adding to the problems,” says Alok Anand, chairman & CEO of Bengaluru-based Acumen Aviation, an aircraft asset management and leasing company. “Many of them are looking to move to Middle Eastern carriers and to IndiGo too. Pilots hold a lot of power, so it can be difficult to manage if they take joint action like this.”

How did the troubles begin?

Much of the recent crisis at Vistara dates to back to the Covid-19 pandemic.

Before the pandemic, the airline paid pilots for 70 fixed hours, according to the executive, who had served as a pilot earlier with the airline. As flying came to a standstill, their salaries were brought down to 40 fixed hours, as airlines tried to arrest losses. To its credit, though, the company ensured there were no layoffs and while the senior management took pay cuts, those below a certain salary level were left off the hook.

“Seventy hours of fixed pay have been the norm for a long time, with everybody including IndiGo, Air India, Jet Airways, and the others,” says the senior executive at Vistara. “IndiGo, the largest airline in South Asia, continues to pay that. So, I am not certain why Air India wants to change that.”

In February last year, Air India said the airline, which has now bulldozed its way through various unions of the erstwhile airline, would offer a fixed pay for 40 hours of flying allowance per month. The move seems to have gone through, even though two unions of the airline, the Indian Commercial Pilots Association (ICPA) and the Indian Pilots Guild (IPG), had opposed the revision before withdrawing it.

In the meantime, as passenger travel began to pick up after the pandemic, Vistara also emerged significantly stronger than before, with the airline cornering a market share of 10 percent by July 2022, while salaries were reinstated to 70 hours. That seems to be changing as the Tata group now looks at the merger, forcing Vistara pilots to take a 40 percent cut in pay. At AirAsia India and Air India Express, which have been merged, the salary is now fixed at 40 hours, which means Vistara remains the lone exception.

“To show savings on paper and in a PowerPoint presentation to their bosses, somebody felt it was important to reduce pilot pay,” the senior executive adds. “The pilots at AirAsia and Air India Express accepted the offer as they can be intimidated easily. But pilots are up in arms here, and the community is disgruntled.”

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The executive also points to situations where pilots aren't making any efforts towards fuel savings during take-off or landings, which can lead to increased costs of operations. “There is an anti-establishment sentiment,” the executive adds. “This also comes at a time when Air India is trying to revamp itself and is trying to take the fight to IndiGo.” In June 2023, global air transport rating organisation Skytrax had rated Vistara as the 16th best airline in the world, and the best in India and South Asia.

“In aviation, you have to treat your people very well,” says Mark Martin, founder and CEO of aviation consulting firm Martin Consulting LLC. “There are also other issues when it comes to the merger. There are four airlines, and all their bosses want to run it differently.”

Vistara, though, says that the recent issues aren’t entirely due to crew unavailability. “We have had a significant number of flight cancellations and delays in the past few days due to various reasons, including crew unavailability,” says a spokesperson for the airline. It has now decided to temporarily reduce the number of flights to provide adequate connectivity across its network. “We have also deployed larger aircraft, like our B787-9 Dreamliner and A321neo, on select domestic routes to combine flights or accommodate more customers wherever possible.”

What happens next?

With three airlines within the Tata group accepting the pay structures, the situation looks rather tricky for Vistara, as pilots are expected to continue with their protest. “Obviously it [the situation] doesn't portray Vistara in a good light and this is probably something the management has to take into account,” says Shukor Yusof, founder and primary analyst at Malaysia-based Endau Analytics. “It's often tough going when pay is being reviewed. The merger is a work in progress, and I suspect we can see more reverberations among staff as the airlines are being consolidated.”

That can be bad, especially from a brand and market share perspective, at a time when the country’s domestic industry is on an upswing. Rating agency ICRA estimates the domestic air passenger traffic in the country to grow between 8 and 13 percent in FY2024, crossing 150 million passengers. “The momentum is expected to continue in FY2025 as well, with a similar estimated year-on-year growth, aided by rising demand for both leisure and business travel and improving airport infrastructure,” said ICRA in a statement in March.

For the Tata group, which is in the middle of a transformation under Wilson Campbell, the New Zealand-born CEO of Air India, this means having to be vigilant in dealing with the rather precarious situation. Air India is in the midst of one of the world’s most anticipated turnarounds after the Tata group acquired the loss-making airline, which has struggled due to decades of underinvestment and an ill-timed merger in 2008.

Since the acquisition, the airline has signed one of the world’s largest airline deals, ordering 470 aircraft from airline manufacturers Airbus and Boeing. The combined value of the deals is estimated at $80 billion. “Restoring Air India to its former glory is not a T20 match,” Wilson had told Forbes India soon after he took over. “It’s going to be a Test match and within that Test match, there’s going to be patience and persistence and partnerships and maybe the occasional sixes and fours. But it’s going to be largely a function of accumulating ones and twos and building that foundation.”

Wilson came to Air India from Scoot, the low-cost arm of Singapore Airlines where he had been serving a second stint as CEO after initially being appointed as the company’s founding CEO in 2011. Since it launched its turnaround programme in September 2022, the airline has set itself clear milestones, focussed on growing its network and fleet, developing a revamped customer proposition, improving reliability and on-time performance, and taking a leadership position in technology, sustainability, and innovation, while aggressively hiring industry talent.

Already, it has invested $400 million in completely new interiors for the airlines’ existing wide-body aircraft, new seats, and new in-flight entertainment in addition to spending another $200 million on IT infrastructure. “The first six months of the transformation programme was about trying to address some of the accumulated issues that had built up,” Wilson had told Forbes India earlier. “Things as basic as refunds not having been paid, or seats not being fixed. But in parallel, we also negotiated the largest aircraft order in aviation history as a very clear signal of intent about the scale and aspiration of the business, and the investment that we were prepared to make in it.”

The plan seems to be on track, especially since the Tata group has been able to corner nearly 30 percent of the domestic market, much ahead of its planned timeline. The group had a market share of 28.8 percent this February. In 2022, Wilson had set a 30 percent target by 2027.

The airline has also been busy ramping up its hiring across both pilots and cabin crew, which means it will have some leverage in quashing any further trouble led by pilots. “Pilots hold a lot of power, and so can be difficult to manage if they take joint action like this,” says Anand of Acumen. “It’s a blip, as pilots from Air India and new pilot entrants will take over eventually.”

For now, India’s civil aviation ministry has said that even though the flight operations are handled by airlines themselves, the ministry is monitoring the situation. “Airlines have to comply with DGCA norms to ensure passenger facilitation in case of cancellations or delays of flights,” the ministry said in a statement on April 2.

So, what’s the likely outcome over the next few days?  “Tata has a track record of good management skills, which should allow them to quickly resolve this,” says Yousuf of Endau. “The more it is prolonged, the worse it could get. As in many similar cases, management is likely to prevail as the market remains robust and travel is up. But getting replacement pilots when they are most needed can be tricky.”