Several aspects of the business strategy unveiled by Vistara, the new commercial airline jointly promoted by the Tatas and Singapore Airlines, stand out. One is that it will offer "premium economy" seats. This is a concept that is not unknown to international airlines, but is being brought to India in this fashion for the first time. Such seats are positioned between economy and business classes, and offer a few extra services. Some such innovation is necessary, given the straits that Indian commercial airlines are in. Airlines have been losing money, with the exception of IndiGo. Thus, the well-run low-cost carrier has over time introduced several innovations to improve its business model, and it is a tough ask of any new entrant to match them at the lower end of the market and still hope to break even. The other end of the price spectrum or the premium category is an equally difficult terrain with the two airlines, Jet Airways and Air India, still incurring losses. So obviously Vistara has to make a pitch somewhere in-between.
What are the chances of Vistara succeeding both with this new product and also offering its regular economy seats (its aircraft will be configured into three classes of economy, premium economy and business) at a premium to the competition? Various assumptions will need to be made. One is that there is a market in India for premium seats short of business. The other expectation must also be that with the rate of economic growth expected to pick up and the capital market already displaying some buoyancy, business and premium holiday travel are also likely to increase. Indeed, Vistara looks to have timed its entry fortuitously. Global oil prices are low, which will offer the enormously needed leg room for India's domestic airlines, which had been struggling thanks to high fuel costs among other things.
What exactly can a premium economy seat offer? The reality is that nobody needs a business class seat for a two-hour flight, the usual length of an Indian domestic flight. European airlines get by with simply keeping the middle seats empty and serving better food. Premium economy seats usually offer more leg room; they are also slightly wider and recline further. Internet connectivity and some decent food at reasonable cost are further pluses. What else does one need for a short flight? IndiGo gets by with offering more leg room in its first row and charging more. Some passengers might ask for more. What is interesting is that, if Vistara's premium economy succeeds, it could do away with business class altogether. Seeing the success, if other airlines make a similar offering, competition in commercial travel will centre not just around price but varying levels of quality, too.
