Vistara shifts gears – reworks network, starts lobbying

Vistara – the TATA-SIA Joint Venture is shifting gears rapidly. The airline is making some network changes and has also started playing the game of lobbying like its competition to sustain in one of the fastest growing markets in the world which also sees cut throat competition.

Last week the airline released a report prepared by industry research body CAPA which was commissioned to study the Indian Aviation industry and suggest changes. This week it has rejigged its network adding frequency on Mumbai-Delhi-Mumbai and cancelling Mumbai-Ahmedabad-Mumbai flights.

A look at what the airline is up to, its learning curve, network rejig and the CAPA report.

Learning Curve

The airline launched operations in January’15 and since then has been struggling to fill up seats on its flights. While the blame is being put on its unique three class configuration (16 Business, 36 Premium Economy, 96 Economy), it may not be the only reason for its lower loads.

Sources say that Premium economy is now seeing higher occupancy, but it needs to be seen if Vistara is eating into its potential Business class passengers or creating a niche for economy class passengers and poaching passengers from other airlines.

The lower loads cannot be blamed on the seating configuration alone. It has a lot to do with route selection and pricing as well. The airline has expanded rapidly but has thin presence except on Mumbai – Delhi – Mumbai. The travel agents who form primary source of information for new airlines tend to claim that they can shift business only when the airline has wider presence. Vistara seems to have taken such advice seriously and launched flights to Hyderabad, Bengaluru, Lucknow, Ahmedabad, Mumbai and so on. However for business traffic to shift, frequencies play a larger role than mere presence.

IndiGo took much longer to enter Chennai, initially starting with one stop flights and later non-stop but took that time to build stronger network at Kolkata and Bengaluru where today it is capacity leader.

The airline also made news recently for a possible reconfiguration. While the rumor mills talked about the new deliveries being reconfigured, it looks like the existing three aircraft would come in the same configuration and the re-configured aircraft would be inducted from Summer Schedule of 2016. It will be a challenge to progressively make the changes and handle operations.

Network Rejig

The airline has pulled out completely from the Mumbai – Ahmedabad – Mumbai sector where it had launched double daily flights and later reduced to single daily. Neither of the flights was at business timings and a premium heavy configuration would not have helped.

The airline has opened 6th daily Mumbai – Delhi – Mumbai flight and is expected to base aircraft in Bengaluru – which will be its third base after its primarily hub Delhi and financial capital Mumbai. The airline could then have higher frequency to Mumbai and Delhi from Bengaluru. The airline may also launch another metro, most likely – Kolkata in near future.

While it currently operates to 11 destinations, the airline has not connected its tier II destinations with Mumbai, a route which sees better yields and loads owing to lesser capacity as compared to that from Delhi. Thus there could be higher yields from flights between Bhubaneshwar – Mumbai, Varanasi – Mumbai and Lucknow – Mumbai.

While connecting each destination to multiple others not only helps amortization but also help push sales through direct and indirect channels since the city has more options in terms of frequency and destinations with you.

Lobbying for 5/20

Vistara commissioned CAPA to come out with a study titled “Maximising the contribution of aviation to the Indian economy” which was released on 6th October in Delhi. The report talks about some key numbers – aviation could possibly contribute 5% of GDP, create economic valuation up to USD 250 Billion and could employ 2.3 million people by 2050. These numbers look derived from IATA report and have been quoted in the draft civil aviation policy of the Ministry of Civil Aviation. The report still relies on the fact that less than 2% of the population in India flew last year – a fact which is being quoted from the days of Air Deccan.

The report has come up with identification of major areas for improvement for growth of Civil Aviation. The areas identified are all old and discussed for years. The report primarily talks about

  • Rationalization of taxation on ATF – which currently is a state subject and the central government has no control over it
  • Lowering of airport charges
  • Making MROs more competitive – Could largely benefit Air Works and GMR Hyderabad
  • Simplifying Route Dispersal Guidelines
  • Opening up ancillary revenue
  • Abolition of 5/20 rule
  • Setting up of Airport Approval Commission

While a lot of points are valid, there will be debate on subsidy/incentives for regional connectivity more so since the funds may have to be raised by having additional taxes on passengers travelling on metro routes.  Some points related to ancillary revenue will benefit the low cost carriers more than airlines like Vistara which with its premium image will find it difficult to charge for seat selection.

Airport approval commission or equivalent is need of the time because of the saturation at Delhi and Mumbai airports. Airlines like Vistara which would grow rapidly and established and larger ones like IndiGo which have record aircraft on order will have a tough time to start flights on metro sectors where the growth of passengers is the highest.

The airline has been kept out of FIA (Federation of Indian Airlines) and this move to start lobbying for multiple parameters which will yield some result and help the airline grow is a good move in Indian aviation. The airline could largely benefit if 5/20 is diluted or done away with and could see induction of few wide body aircraft and launch services to Singapore, London and Hongkong.

Closing comments

There is no better time to be in airline business in India. With market growing at 20%+ it is easy to poach passengers even with a limited network. However Indian consumers are price conscious and will shift loyalty quickly.

While Vistara has stalwarts from Singapore Airlines leading them, the airline probably needs a senior strategy team with experience in handling the complex Indian market along with having a strategy in place to expand rapidly and penetrate the corporate traffic.

It is still unclear if Vistara wants to make inroads in those markets where Jet Airways – its biggest rival is weak or absent or offer better services and flight options across the country and wait for passengers to make the shift. Whatever it may be, the Mumbai – Ahmedabad pullout is an indication that Jet Airways – with its 7x daily flights has proved a tough competition so far.

On the lobbying front, I won’t be surprised if a Federation of Newer airlines in India is formed as another pressure group apart from the FIA to demand and push for policy changes in near future.


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