Vistara – Setting the tone for growth

I have always felt that India needs another Full Service Carrier (FSC), ever since the demise of Kingfisher.  There is market for FSC at the right price and differentiator. No wonder then that I have been keenly tracking Vistara, since the day TATA-SIA announced its launch. The airline operates a fleet of 13 A320ceo and has seven A320neo on order, the first of which will be delivered in April. The A320neo is likely to see some changes (mood lighting?) aimed at enhanced customer satisfaction along with belly branding.

When the line is thin between Low Cost Carriers (LCC) & FSC, primarily due to regulations, it takes a lot to distinguish between an FSC and LCC. Air India lacks the in-flight experience with examples of broken armrests and taped windows; Jet Airways has little in terms of differentiator in Economy Class. The airline now charges for seat selection, the meal served has shrunk in size and my personal experience says it is better to not talk about the taste. Vistara has been a differentiator here since its inception.

Vistara Station Timeline

Vistara destinations

Network, Pricing & Market Performance

Vistara will start red-eye operations on Kolkata – Pune route soon and could launch more red-eye flights at slot congested airports. It recently withdrew one frequency on Delhi – Guwahati & sole frequency on Mumbai – Kochi to expand on Delhi – Pune & Mumbai – Amritsar respectively. Vacating a market is never an easy decision. The haunting thought always for any airline is the perception that it creates for competition. Can a particular airline be pushed to withdraw?

I expect the airline to have a major rejig with additional capacity in the next few months and without addition of destinations. Since we are very close to the beginning of Summer Schedule, it would make sense to take a look at the Network in detail, separately. One thing is certain that the lack of slots at Mumbai and limited availability at other metros will definitely alter the growth plan for Vistara.

Isolated pricing of Economy & Premium Economy still throws up quite a few instances where-in Premium Economy cheaper than Economy class. Vistara has been showing guts to price themselves aggressively with a considerable difference between them and the nearest LCC.

Is the airline spreading too thin with 19 destinations with just 13 aircraft and do some of them exist because it has to comply with the RDGs in India?

Last three months have seen the airline increase its load factors drastically. Is this due to higher conversion of groups, better deals for corporates, cheaper travel agent fares, popularity of product or a heady mix of all? What is certain is that the Premium Economy & Business class is seeing bums on seats and that is good news. As I have said before, the highest cost for any airline is the cost of an empty seat.

Vistara vs Industry LF

Gap between Vistara & Industry leader has narrowed down

Code Share, Interline & the Delhi – Hub

Vistara signed its first code share agreement with equity partner Singapore Airlines (SIA) & SIA subsidiary Silk Air (Vistara signs first code share pact with equity partner Singapore Airlines). Vistara has interline with Air France, ANA, British Airways, Finnair, Japan Airlines, Kenya Airways and KLM, all of which operate to Delhi.

Establishing hub at Delhi, is turning out to be a big differentiator for the airline. Large presence of FSCs making it easy to nibble traffic, availability of space at the airport and a world-class terminal in line with the premium offering. Add to that the perception of Delhi NCR opting for opulence and Delhi becomes a winner for Vistara. The airport also sees maximum airlines from across the world land into India, which would help Vistara increase Interline and Code share arrangements going forward. The airline was quick to establish a lounge at Delhi, something that Jet Airways lacks at one of its biggest hubs.

Does the choice of airlines for Interline/code share give out the future International destinations for the airline and an opportunity to market itself for future passengers on non-stops to London, Paris, Tokyo and Amsterdam? To effectively offer two-way connectivity for interline passengers, Vistara will have to increase frequencies to Chandigarh and Amritsar to connect to the afternoon European bank as well as launch flights during the wee hours and late evening hours to ensure optimum connecting times. Will the slot congestion at Delhi allow this? It probably will.

Two years of Vistara

Fleet options & Configuration

Personally, I had doubt on the configuration even before the airline announced its operations. My blog on rumored seating configuration (Is Vistara’s rumored seating configuration the right mix?) is widely read. The airline did change its configuration to 8 Business, 24 Premium Economy and 126 Economy seats and I will not be surprised if they further make changes to the configuration. However, as a FSC the airline could go for multiple other options.

  1. Turboprop: Lower trip cost but premium product offering a challenge. Could help increase frequencies and establishing an effective hub in North, East & South.
  2. A321s: Increase economy class seats without increasing Business Class & Premium Economy. The A321 is expensive but the Cost Per Available Seat Kilometer (CASK) is the lowest amongst the A320 family of Airbus.
  3. Sub-Fleet of A320: Having two different configurations of A320, lesser seats of Economy & Premium Economy for leisure routes
  4. Wide Body: An order is due. Will it be the B787-9, A330neo or A350-900? My prediction is that it will be the B787-9 which will allow the airline service the obvious markets of London, Hong Kong and Singapore and keep options open for non-stop operations to North America.

Tail Note

A lot is at stake for the airline. The airline could stabilize around 50 aircraft in another six to eight years which will be a mix of narrow body and wide body aircraft.  The airline has been distinctive in its market & branding efforts as compared to other FSCs and both TATA & SIA are brands which are typically willing to invest a lot in building brands before fetching returns on it.

There would be some key questions, which the airline has to answer soon.

  • The airline seems to have silently buried the plan of rolling out inflight connectivity. Rival Jet Airways went ahead with offering connectivity on most of its aircraft.
  • Is the premium economy offering so good that it is taking away passengers from own Business class product?
  • What is the price differential between Premium Economy & Economy? Will it help to add more rows of economy?
  • Pricing anomaly between Economy & Premium Economy
  • Will the gulf routes support premium configuration when the markets see presence of Emirates / Etihad / Qatar or the other ones cater to migrant traffic primarily?
  • Will rivals block bilaterals just before Vistara reaches 20 aircraft?

The airline, as per recent newspaper reports, has made a loss of INR 400 Cr in FY16 with a CASK of INR 5. As the airline spreads further, the losses could increase as the airline expands, the per unit loss will definitely shrink.

Vistara has announced that it would start international operations in 2018. Hopefully the country will see the ICAO audit of November to be successful and not hinder the plans of airlines hit a deadlock due to regulatory hurdles. Will the airline start services to Singapore from all the major metros first or look comprehensively across the neighborhood and choose a mix of Gulf and South East Asian routes? A lot will depend on bilateral availability and the economic condition in Gulf – which currently is not at its best.

Clearly how the airline gears up with the induction of aircraft 14 to 18 will set the ball rolling for the future of Vistara. The next 12 months are the most key months in the history of the airline which will chart out its future.

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