Vistara aims for the sky, but needs to do some ground work

Bogged down by its poor network and small size, the airline is now rethinking its plans

Nine months after its launch, Vistara seems to have returned to the drawing board. The airline, a joint venture between Tata Sons and Singapore Airlines, is tweaking its strategy to script a success story.

Vistara's first flight took to the skies on January 9 on the Delhi-Mumbai route, the busiest in India. But several months later, it continues to lag behind its rivals in terms of passenger load. Currently, Vistara has an average passenger load factor of 60 per cent as compared to the average of 82 per cent in other airlines. The airline is clearly not drawing the crowds the way it had anticipated.

When it launched service, Vistara distinguished itself by offering significantly higher fares than the competition, but now it has been forced to match up its economy class fares with those of the no-frills carriers.

While positioning itself as a full-service carrier, the airline had opted for a higher number of seats that would have higher yields. It chose a three-class configuration (16 business class, 36 premium economy and 96 economy class seats). Other carriers in India either operate on a twin-class (business and economy) or an all-economy configuration.

Critics say Vistara's seat configuration proved to be its weakness. "The airline segmented the economy class by introducing the premium economy," says an aviation expert. "Ideally, this would work in longer duration flights, but within India the average flight duration is 80 minutes. Why would passengers pay a premium on short flights? It seems Vistara chose this configuration in view of its planned international foray."

The management of Vistara, however, says the demand for premium economy class has picked up, but at the same time it acknowledges that business class load has been below expectation.

The other problem is that the fledgling airline flies far fewer seats than its rivals and, therefore, needs to earn higher yields than them. Vistara's Airbus A320 has 148 seats. IndiGo has 180 seats on its Airbus A320 and Jet Airways Boeing 737 has 168 seats (including 12 business class seats). With fewer seats, Vistara needs to earn higher average revenue per passenger than others to break even, which explains the initial premium pricing gambit.

VISTARA COMPARED WITH OTHER AIRLINES

ECONOMY CLASS
Vistara

• 30-inch seat pitch* and 18.1-inch seat width, the same as in premium economy

IndiGo

• 29- to 30-inch seat pitch; 34-inch pitch in the first few rows; seat width of 17.99 inches

Jet Airways

• 29- to 30-inch seat pitch; 17- to 17.2-inch seat width

Air India

• 31- to 32-inch seat pitch; 16- to 18-inch seat width

VISTARA PREMIUM ECONOMY VS GOAIR BUSINESS AND SPICEJET MAX
Vistara

• 33- to 36-inch seat pitch, with improved seat-bottom and back cushion; 18.1-inch seat width; height adjustable winged headrests with long armrest and large tray table, improved seat cushion for support, personal coat hook

GoAir

• Hot in-flight meals; welcome drink; enhanced baggage allowance of 35kg; complimentary food & beverage invitation for restaurants; car transfers between terminal and aircraft at select airports; priority check-in; (GoAir did not share details of seat pitch and width.)

SpiceJet

• 35-inch seat pitch; 17.1-inch seat width; complimentary meal, priority check-in and priority baggage delivery; SpiceJet Max fee ranges from Rs 500 to Rs 1,000 depending on flight duration

BUSINESS CLASS SEATS

Vistara

• 40-inch seat pitch and 20.1 inches of seat width

Air India

• 42-inch seat pitch and 21-inch seat width

Jet Airways

• 44-inch seat pitch and 20.5-inch seat width

*Seat pitch is the space between a point on one seat and the same point on the seat in front of it
Source: Airlines
Tweaking plans
With low passenger load factor remaining a challenge, Vistara has had to redraw its plans. A change in configuration is on the cards and the airline is considering halving its business class seats to eight in the Airbus A320 aircraft that are expected to be inducted next year.

Vistara Chairman Prasad Menon denies that the airline over-estimated the demand for premium traffic on domestic routes. "People are beginning to understand our three-class model," Menon told Business Standard recently. "We are encouraged by passenger response. We are seeing significant uptick and a lot of people now prefer premium economy."

One reason for poor occupancy in Vistara's business class is its small size. The airline has a limited network and, hence, it has been difficult to fill up all the business class seats. As of now, it has only eight A320 aircraft. IndiGo has 97.

In order to attract corporate business, an airline needs a wide network and convenient flight timings. Vistara does not fly to Chennai or Kolkata. And, it flies only once daily to Bengaluru from Delhi and Mumbai. In contrast, IndiGo has 11 daily flights to Bengaluru from the two cities. Vistara, however, is adding more flights between Mumbai and Delhi from December.

Competition in domestic skies is intense and rivals have not made it easy for Vistara. Its competitors, especially IndiGo, have been adding capacity on routes being launched by Vistara in a seemingly preemptive fashion. Jet Airways too has added flights on domestic routes.

According to aviation blog Bangalore Aviation, "The lack of broad network of business destinations with services at convenient timings adds to the challenge, and this is reflected in the extremely low passenger load factors. The airline appears to be relying on value-added services like wi-fi on aircraft. This will provide sustainable competitive advantage to Vistara, but it is not likely to generate adequate monetary returns."

To overcome the challenges, Vistara is getting aggressive on the sales and marketing front. The airline has already revised its commission policy. Discontinuing its zero commission policy, it is giving a 2 per cent incentive to travel agents starting October. It has also increased its agent network around the country. Vistara already has an agency network in a few overseas markets, including the US and Australia. Recently, it appointed Sharaf Travels in Dubai and Air System Inc as its general sales agents for the Gulf region and Japan, respectively. Though sales in the overseas market might be limited, this clearly signals the airline's intent to fly abroad.

In-flight in focus
With the promise to redefine the way Indians travel, the airline has brought in many innovations. A value-based (rather than miles-based) loyalty programme is one such area it has introduced. Other plans include wireless streaming of pre-loaded entertainment content on personal devices.

A new co-branded credit card and an exclusive lounge at the Delhi airport are due for launch. The airline is also said to be planning a tie-up with the Tata group-owned Taj Hotels. Recently, the airline released a print advertisement, designed by Ogilvy & Mather, to promote its premium economy service. The advertisement shows a freshly-cut salad in a plate shaped like an aircraft tail and carries the message, "Arrive fresh". "The airline wants to convey that its in-flight service is superior to others and it enables passengers to arrive fresh at their destination," says Ajay Gahlaut, executive creative director, Ogilvy & Mather.

Some of these measures might help drive traffic, but if Vistara has to compete with carriers that are pressing more flights into popular sectors, the airline will have to come up with a credible strategy to outsmart its rivals.