Three months is a long enough time in business to take stock of a new venture’s progress. In an industry where mortality is high, Vistara — the joint venture between the Tatas and Singapore Airlines — has made a steady start, but the challenge would be to grow.
Aviation analyst Kapil Kaul of Centre for Asia-Pacific Aviation (CAPA) says Vistara has checked all the right boxes so far. “They are well capitalised with a strong management team and a long-term focus. This will help them to overcome strategic challenges,” he says.
While most airlines operate with two aircraft and to about four cities in their first hundred days, Vistara has an impressive 10 destinations connected through six aircraft. Perhaps, this is what makes the airline’s management believe it is on the right path. “Vistara entered the market with the right understanding of the pulse of the discerning traveller,” says a confident Phee Teik Yeoh, the CEO of Vistara.
The numbers are improving too. For April, Vistara’s market share in the domestic airline market is at 1.2 per cent, compared with 0.8 per cent in March. The number of passengers it carried during April has also increased — to 79,000 from 53,000 in March. Seat occupancy was 67.3 per cent, an almost 14 percentage points rise from March. But more importantly the on-time performance is at 96.3 per cent. For the segment leader Jet Airways, occupancy in April was 82 per cent, while on-time performance was 79.9 per cent.
CAPA’s Kaul believes that the passenger load factor will increase by the third quarter of operations though aggressive pricing will keep yields lower than estimated. There are, of course, issues with the newly introduced seat configuration called “premium economy” which critics claim hasn’t been much of a success, though Vistara believes otherwise.
“Indian travellers were missing the real full-service airline experience till Vistara,” says Yeoh. He points out that earlier Indians equated full-service with a mere free meal on board, while in reality it is much more than that.
But the full-service airline segment has been treacherous terrain for the players. Kingfisher Airlines and before that Damania Airways were in their own way trendsetters with the latter even serving liquor to its passengers. But both have shut shop. Vistara now competes with Jet Airways and Air India in the segment.
Perhaps, the biggest challenge for Vistara will be the DFCs (domestic flying credits) which might replace the 5/20 rule. Already, airlines have formed blocs opposing and supporting the proposed move.
One lobby consisting of the powerful Jet Airways and IndiGo, which have the largest market share in the domestic airline sector, want the government to keep the 5/20 norm. But newer carriers like AirAsia and Vistara want it to be dismantled.
5/20 or DFCsThe 5/20 rule allows airlines to fly international routes once they complete five years and build a fleet of 20 aircraft. The Civil Aviation Ministry wants it to be replaced with DFCs. The credits are calculated on the basis of revenue per passenger km flown by an airline for a year. These credits can be earned by flying to top 20 cities in the country and to smaller cities. Airlines can also purchase 25 per cent of credits from regional airlines or helicopter companies.
The civil aviation ministry, which has proposed the change some time back, believes that it will lead to better connectivity to remote areas.
For Vistara, it may yet turn out to be a no-win situation. Under the new rules, an airline needs 600 credits to fly to nearby destinations, which might take another three years. Civil aviation ministry officials claim that this is to prevent airlines from setting up hubs in the Gulf or the South-East Asian cities.
Vistara will be able to capitalise much more on the infrastructure of its parent Singapore Airlines if it is allowed to operate internationally.
CEO Yeoh though does not reveal his airline’s international plans. “Once the changes are announced, we will re-strategise to firm up our international plan,” is all he is willing to divulge.
But Vistara’s focus in the short term at least will have to remain on innovation — like it has done with its in-flight menu — and keeping the customer interested through exceptional service and amenities. While it has taken off well, what needs to be seen is if Vistara will achieve cruise speed soon, and how it will handle the turbulence prevalent in the industry.