Vistara, the country’s newest full-service airline, increased its flight frequencies on most metro routes last June. However, this brought on new challenges for the airline’s network team. It had to find remote routes to fly to in order to comply with government rules.
To improve regional connectivity, route dispersal guidelines require airlines to deploy a fixed capacity on routes that are unprofitable. Last month, Vistara failed to comply with the guidelines. Now intense lobbying has broken out over a proposal that aims to make it easier for airlines like Vistara to comply. IndiGo, Jet Airways and GoAir have opposed the proposal that will allow airlines to trade seats among themselves if they come up short in the route dispersal guidelines.
An airline failing to deploy the requisite capacity on remote routes can buy seats from other airlines that have more capacity on such routes. The proposal is akin to banks trading among themselves in order to meet the criterion of lending 40 per cent to priority sectors like agriculture and small enterprises.
IndiGo, Jet Airways and GoAir fear such a provision will provide undue advantage to Vistara. “The buyer will benefit and use these benefits to create distorted competitive dynamics. The seller will also have undue benefit in these markets by making their capacity more viable,” a document signed by the three airlines says.
Route dispersal guidelines recognise three kinds of routes. Category-I represents profitable routes among metros. Category-II includes the north-eastern region, Jammu and Kashmir, and Lakshadweep. Category-III represents cities such as Coimbatore, Kochi and Pune. Airlines have to deploy on Category-II routes at least 10 per cent of their capacity deployed on Category-I routes. Likewise, they have to deploy on Category-III routes at least 35 per cent of their capacity deployed on Category-I routes.
For Vistara, which markets itself as a premium airline, the route dispersal guidelines are a significant barrier. “Some of the destinations that Vistara flies to are only in order to comply with the norms. When you are small and you still have to meet route dispersal guidelines, you have to fly to more destinations than you want,” an expert said.
With 17 aircraft, Vistara flies to 21 destinations. Industry sources said some of Vistara’s destinations like Bagdogra, Guwahati were not profitable. The situation became trickier from November when the government increased the number of Category-I routes. From existing 12 city pairs, the number increased to 20, forcing airlines to deploy more capacity on Category-II and Category-III routes.
“There was no need for this change, especially when there is more capacity deployed than stipulated. Changing route dispersal guideline categories will affect airlines’ network planning,” a Jet Airways executive said.
To comply with the additional requirements Vistara started buying seats from its sister concern AirAsia India and SpiceJet, which have additional capacity on such routes.
A civil aviation ministry official said a clerical mistake caused the clause that allowed trading of seats to be excluded. “Vistara brought it to our notice a few months ago. We wanted to include it, but thought it would be prudent to consult all parties first,” the official added.
“There is no reason why trading of seats should not be allowed. It only harms the business case for airlines while providing no benefit,” said Kapil Kaul, CEO, South Asia, of aviation consultancy firm CAPA.