The Gulf Today - Business - - SPECIAL REPORT -

In the highly price-sen­si­tive In­dian avi­a­tion mar­ket, Vis­tara, a full-ser­vice car­rier backed by lo­cal con­glom­er­ate Tata Sons and Sin­ga­pore Air­lines , is bet­ting it can con­vince pas­sen­gers to buy higher fares in re­turn for su­pe­rior ser­vice.

Though all air­lines in In­dia are feel­ing the pinch - with debt-laden Air In­dia and Jet Air­ways in such a par­lous fi­nan­cial state they have been strug­gling to pay staff salaries on time - Vis­tara says its up­mar­ket strat­egy is start­ing to bear some fruit.

Mean­while, Chief Strat­egy and Com­mer­cial Of­fi­cer San­jiv Kapoor and Chief Ex­ec­u­tive Of­fi­cer of Vis­tara Les­lie Thng posed with staff of Vis­tara’s new Air­bus A320­neo pose dur­ing an event at the Indira Gandhi In­ter­na­tional Air­port in New Delhi on Sept.1, 2018.

Vis­tara has nar­rowed its losses and seen av­er­age fares rise this year as cus­tomers take to its prod­uct of­fer­ing, in­clud­ing a do­mes­tic pre­mium econ­omy class, even though ticket prices at most ri­vals are fall­ing, Vis­tara CEO Les­lie Thng said in an in­ter­view at the car­rier’s head­quar­ters.

“We have seen a steady im­prove­ment in terms of de­mand, in terms of load fac­tor as well as in terms of the fare pas­sen­gers are will­ing to pay,” said Thng, a Sin­ga­pore Air­lines vet­eran who pre­vi­ously ran its South­east Asian re­gional arm, Silkair.


In­dia’s do­mes­tic air­line mar­ket, the world’s fastest grow­ing at 20 per cent a year, rep­re­sents an en­tic­ing long-term op­por­tu­nity for Tata and Sin­ga­pore Air­lines. But in the shorter term it has turned into a fi­nan­cial sink­hole - high oil prices and a weaker cur­rency are not be­ing re­couped in fare prices, driv­ing car­ri­ers into the red.

“That is a para­dox,” As­so­ci­a­tion of Asia Pa­cific Air­lines Di­rec­tor­gen­eral An­drew Herd­man said of In­dia. “It has a lot of ex­cit­ing po­ten­tial but from a busi­ness point of view, very chal­leng­ing.”

Vis­tara, which started fly­ing in 2015 and now has 22 Air­bus SE A320 nar­row­body jets and a 4 per cent do­mes­tic mar­ket share, has strug­gled fi­nan­cially as it scales up.

It nar­rowed its losses to $58.9 mil­lion in the fi­nan­cial year ended March 31 from $70.9 mil­lion a year ear­lier, ac­cord­ing to ac­counts filed with the cor­po­rate reg­u­la­tor this month, but it faces tougher mar­ket con­di­tions this year, with con­sult­ing firm CAPA In­dia es­ti­mat­ing it could lose $150-200 mil­lion.

“It was tough. It is get­ting tougher be­cause of the macro con­di­tions, the higher fuel price, the lower ru­pee,” Thng said of the op­er­at­ing environment.

Bud­get air­line Indigo, the In­dian mar­ket leader with a 43 per cent share, is adding ca­pac­ity rapidly to pro­tect its dom­i­nant po­si­tion even though fares fell al­most 10 per cent in the quar­ter ended Sept. 30.

As a full-ser­vice car­rier, Vis­tara is more fo­cused on ob­tain­ing a pre­mium ticket price to cover the higher costs of of­fer­ing perks such as food, a checked bag­gage al­lowance and a fre­quent flyer pro­gramme.

Vis­tara sees a path to even­tual prof­itabil­ity through plans to launch in­ter­na­tional flights as soon as it ob­tains reg­u­la­tory ap­provals and to more than triple its fleet over the next five years to give it a larger share of the In­dian mar­ket, Thng said.

A ma­jor strat­egy shift is to own some of its fleet rather than leas­ing all of it. Vis­tara will own 19 jets worth a com­bined $3.1 bil­lion or­dered from Boe­ing Co and Air­bus ear­lier this year, and lease an­other 37, un­der­scor­ing its growth plans and strong fi­nan­cial sup­port from its top share­hold­ers.

“This is a mar­ket that is strate­gic for them in terms of avi­a­tion and this is a mar­ket where Vis­tara will con­tinue to grow and be prof­itable,” said Thng. “They will have to in­ject a lot more (cap­i­tal) go­ing for­ward.”

Tata and Sin­ga­pore Air­lines this month in­vested $273.4 mil­lion in the air­line, ac­cord­ing to a reg­u­la­tory fil­ing.

For Sin­ga­pore Air­lines, the growth in In­dia far out­paces its es­tab­lished mar­kets and Vis­tara pro­vides a strate­gic op­por­tu­nity to build a busi­ness in a coun­try of 1.3 bil­lion peo­ple and a grow­ing mid­dle class that can now af­ford to fly.

For Tata, which once owned Air In­dia, it rep­re­sents a way back into the full-ser­vice air­line busi­ness 65 years af­ter that car­rier was na­tion­alised.

The idea is to build up a pre­mium In­dian brand that stands on its own, rather than an off­shoot of Sin­ga­pore Air­lines, the Sin­ga­pore car­rier’s gen­eral man­ager for In­dia David Lim said.

“I see ben­e­fits for In­dian cus­tomers. It is an In­dian prod­uct,” he said.

The in­ter­na­tional route net­work will be sim­i­larly In­dia-fo­cused, Vis­tara’s Thng said, with the air­line look­ing to send pas­sen­gers from its New Delhi hub to a va­ri­ety of in­ter­na­tional des­ti­na­tions to the east and west - not just Sin­ga­pore - par­tic­u­larly af­ter six long-range Boe­ing 787s ar­rive from 2020.

In In­dia, the govern­ment re­quires an air­line to have more than 20 jets be­fore op­er­at­ing in­ter­na­tional flights. Vis­tara reached that mile­stone in June but has been wait­ing on reg­u­la­tory ap­provals be­fore launch­ing into the more lu­cra­tive in­ter­na­tional mar­ket.

A govern­ment of­fi­cial who spoke on con­di­tion of anonymity said Vis­tara’s hopes of do­ing so by De­cem­ber ap­peared op­ti­mistic but ap­provals should be granted within “a mat­ter of months”.


Vis­tara’s en­try into the mar­ket has not been with­out its chal­lenges. Lit­tle more than a year af­ter its first flight, the air­line re­con­fig­ured its planes to cut the num­ber of busi­ness and pre­mium econ­omy seats in favour of a larger econ­omy class.

The In­dian mar­ket is dom­i­nated by low-cost car­ri­ers like In­terglobe Avi­a­tion Ltd’s Indigo and Spicejet Ltd , and sell­ing tick­ets at a pre­mium is par­tic­u­larly dif­fi­cult in less wealthy sec­ond-tier and thirdtier ci­ties where In­dian reg­u­la­tors re­quire car­ri­ers to place 10 per cent of their ca­pac­ity. “What the fullser­vice car­ri­ers have started do­ing is pric­ing like a low-cost car­rier and down­grad­ing their ser­vices value - that is the mis­take Jet Air­ways has made,” Elara Cap­i­tal an­a­lyst Ga­gan Dixit said.

In Au­gust, Vis­tara added a new econ­omy-lite fare class that ex­cludes a com­pli­men­tary meal and has a smaller bag­gage al­lowance, rais­ing ques­tions over whether it was chang­ing its busi­ness model to com­pete.

Thng, how­ever, said the lite fares were be­ing of­fered mostly on smaller routes rather than pop­u­lar ones such as New Delhi-mumbai, with the in­tent of giv­ing more price con­scious cus­tomers the op­por­tu­nity to get a taste of the pre­mium Vis­tara prod­uct.

“Hope­fully they will move up the value chain,” he said. “The econ­omy is still grow­ing. The num­ber of peo­ple who can af­ford to pay, I be­lieve will in the com­ing years con­tinue to grow very ag­gres­sively.”

Bar­gain-base­ment fares, high oil prices and a tum­bling ru­pee are caus­ing tur­bu­lence in In­dia’s hy­per-com­pet­i­tive avi­a­tion mar­ket, vir­tu­ally wip­ing out air­lines’ prof­its and leav­ing them scram­bling to cut costs to sur­vive.

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