NEW DELHI (Reuters) – Vistara, a full-service carrier owned by local conglomerate Tata Sons and Singapore Airlines Ltd. (in the high-priced Indian aviation market) is supported (SIAL.SI), bids that it can convince passengers to buy higher prices in exchange for better service.
FILE PHOTO A passenger aircraft Vistara Airbus A320-200 prepares to land at Chhatrapati Shivaji International Airport in Mumbai, India on July 11, 2018. REUTERS / Francis Mascarenhas / File Photo
Although all airlines in India feel the pinch – with debt-laden Air India and Jet Airways (JET.NSIn such a difficult financial situation, they have been struggling to pay staff salaries on time – Vistara says his upscale strategy is bearing fruit.
The airline has reduced its losses and increased its average air fares this year as customers take a product offering, including a domestic premium economy class, even though ticket prices are falling at most of its competitors, Vistaras CEO Leslie Thng said in an interview Headquarters of the carrier.
"Both in terms of capacity utilization and fares that passengers are prepared to pay for, we have a steady increase in demand," said Thng, a veteran of Singapore Airlines, who previously led his regional office in Southeast Asia, Silkair.
India's domestic airline market, which is growing at the fastest rate of 20 percent annually, is a tantalizing long-term opportunity for Tata and Singapore Airlines. But in the short term, it has turned into a financial crisis – high oil prices and a weaker currency are not being recouped in the tariffs, which is driving airlines into the red.
"This is a paradox," said Andrew Herdman, Asia Pacific Airlines General Manager, on India. "It has a lot of exciting potential, but very challenging from a business perspective." Vistara, which started flying in 2015 and now 22 Airbus SE (AIR.PA) Narrowbody jets and a 4 percent domestic market share have fought financially as it scales.
The loss declined to $ 58.9 million last fiscal year from $ 70.9 million a year earlier, according to accounts filed with the Group regulatory agency. However, this year, the consulting firm CAPA India faces harsher market conditions of $ 150-200 million.
"It was tough, it's getting harder because of the macroeconomic conditions, the higher fuel price, the lower rupee," Thng said of the operating environment.
GRAPHIC-India's aviation market – tmsnrt.rs/2xlWaet
Way to profitability
The low-cost carrier IndiGo, which is India's market leader with a 43 percent market share, is rapidly expanding capacity to protect its dominant position, even though prices fell nearly 10 percent in the quarter ended September 30.
As a full-service carrier, Vistara is keen to receive a premium ticket price to cover the higher cost of offering perks like food, a baggage allowance and a frequent flyer program.
Vistara sees a path to ultimate profitability through plans to launch international flights as soon as it receives regulatory approvals and more than triples its fleet over the next five years to give it a larger share of the Indian market, Thng said.
An important strategy shift is to own a part of the fleet instead of leasing everything. Vistara will own 19 jets totaling $ 3.1 billion at Boeing Co (BAN) and Airbus earlier this year and leased another 37 to underline the growth plans and strong financial support from key shareholders.
"This is a market that is strategic for them in terms of aviation and in this market Vistara will continue to grow and be profitable," said Thng. "They will have to inject much more (capital) into the future."
Tata [TATAS.UL] and Singapore Airlines invested $ 273.4 million in the airline this month.
For Singapore Airlines, India's growth is well above established markets and Vistara offers a strategic opportunity to fly in a country with 1.3 billion people and a growing middle class that can afford it.
For Tata, which once owned Air India, it is a return to full-service airline business 65 years after its nationalization.
The idea is to build a premium Indian brand that is standalone and not an offshoot of Singapore Airlines, said David Lim, Singapore General Manager Singapore.
"I see benefits for Indian customers, it's an Indian product," he said.
The international route network will also target India, Vistaras Thng said. The airline wants to send passengers from its hub in New Delhi to a variety of international destinations to the east and west, not only to Singapore, especially after six long-haul Boeing 787 arrive from 2020 on.
In India, the government requires that an airline own more than 20 jets before making international flights. Vistara reached this milestone in June, but is awaiting regulatory approval before entering the more lucrative international market.
A government official speaking on the condition of anonymity said that Vistara's hopes of doing so by December seemed optimistic, but permits should be granted within "a few months."
Vistara's market entry was not without its challenges. Just over a year after its first flight, the airline has reconfigured its aircraft to reduce the number of business and premium economy seats to a larger economy class.
The Indian market is being driven by low-cost carriers such as Interglobe Aviation Ltd. (INGL.NS) IndiGo and SpiceJet Ltd (SPJT.BO) and the sale of tickets at a premium is particularly difficult in less affluent second and third tier cities, where Indian regulators require airlines to place 10 percent of their capacity.
"What the full-service carriers have started is pricing as a low-cost carrier and downgrading their service value – that's the mistake Jet Airways made," said Elan Capital analyst Gagan Dixit.
In August, Vistara added a new economy lite fare class that excludes a free meal and has a lower free baggage allowance. This raises the question of whether the business model has changed to be competitive.
However, Thng said that the lite tariffs would be offered mainly on smaller routes, rather than on popular ones like New Delhi-Mumbai, to give price-conscious customers the opportunity to get a taste of the world-class Vistara product.
"Hopefully they will pull up the value chain," he said. "The economy continues to grow, and I think the number of people who can afford to pay will continue to grow very aggressively in the coming years."
Reporting by Jamie Freed and Aditi Shah; Editing by Alex Richardson