Green light: Painful wait for Vistara to fly abroad is now over

The Tata-SIA joint venture is entering the international market at an opportune time but could run into the headwinds of bilateral air service agreements

For Vistara, the painful wait for over a year to fly abroad is over. And the green signal a fortnight ago, after months of dithering, could not have come at a more opportune time. 

Two major domestic airlines are in a mess — Jet Airways and Air India — and are being readied for sale this year (Air India for the second time). Both are full-service carriers like Vistara. 

On Monday, bankers ousted Jet promoter Naresh Goyal, took over the management of Jet Airways, and committed to put in money to nurse it back to health. The airline, which has over two-thirds of its fleet grounded on account of money owed to lessors, has slashed services to Dubai, stopped all flights to Abu Dhabi and cancelled numerous flights to and from Singapore, Bangkok, Hong Kong, Riyadh and Doha, among others. 

The bankers expect to find a new investor to take control by May, but aviation experts say it would take six to eight months get the airline back in shape. Plus the government is preparing to sell Air India after an aborted attempt last year and, therefore, will not add any more aircraft to its overseas fleet. 

This is just the kind of vacuum Vistara could fill. 

The outbound business is too competitive for the Tata-Singapore Airlines (SIA) joint venture to reveal a specific time-line for its overseas operations. But a spokesperson said the airline will fly to destinations within the A-320 flying range (three or six hours), which suggests West Asia and South East Asia.  To this end, the airline plans to add 56 aircraft, partly on sale and lease, deliverable from the second half of 2019 to 2023. This will include six 787 Dreamliners, for middle- and long-haul flights. Vistara also wants Delhi to be a key hub for its global foray. 

But will the 51:49 joint venture between the Tata group and SIA change the international aviation travel business in India? That too when the airline is yet to make a major dent in the domestic skies? Four years after it took wing, Vistara’s domestic market share is 3.9 per cent share (January-February 2019), smaller than its other joint venture, Air Asia (5.2 per cent); and it is still deep in the red with losses of Rs 431 crores in FY18. With a fleet of 22 Airbus aircraft, it flies to 24 destinations compared to a fleet of 119 and 45 destinations by Jet Airways. 

This cautious approach is apparently deliberate: It’s the international business that is the focus, with the domestic service acting as a feeder network. 

The international foray is crucial for SIA’s global ambitions. Though the island nation’s flag carrier dominates the India-Singapore route with a 40 per cent market share, the Vistara joint venture enables it to tap the lucrative west-bound market, which accounts for over 70 per cent of international passengers from and to India. The West Asian market (United Arab Emirates, Oman and Qatar) alone accounts for 45 per cent of this and is dominated by the Big Three Gulf carriers. Currently, Singapore Airlines accounts for just 6.5 per cent of that market from India. 

There are, however, some air pockets ahead for Vistara’s overseas flight plans. For one, SIA has been unable to grow on the India-Singapore route because it has exhausted its seat allocation under the bilateral air services agreement and the government is not heeding to its request to allocate it more seats. It could have got over the seat restrictions by using Vistara to fly to Singapore using the unutilised seats from India. But that option is dwindling with over 80 per cent of the seats from India to Singapore already being used. This leaves Vistara little leeway for additional capacity on the route. And even there, carriers like Air Asia India (which is planning to fly abroad), IndiGo and Air India are planning to expand capacity. 

Seat allocations will be a bigger challenge in West Asia. Indian carriers have already used their entire rights on seats under the bilateral agreements with the UAE and over 90 per cent with Qatar. The government may decide to raise these allocations but this is an unlikely proposition in the immediate future because doing so would reduce valuations for Jet and Air India in a sale. 

Second, it will also face infrastructure constraints within the country — for instance, there is no slot in Mumbai to permit more flights and that is a key destination for international travellers. 

Of course, the airline could surmount this problem and gain a huge head start if it bought a stake in Jet Airways. It could utilise the slots available with Jet in over 20 cities across the country and West Asia, plus the invaluable ones at Heathrow. Asked about this possibility, the Vistara spokesperson said, “Our plans are independent of the status of any other airline operation. We will be interested in acquiring slots in cities that align with Vistara’s international plan.”