India’s Vistara To Dive into International Market

by Neelam Mathews

 - October 18, 2016, 9:00 AM

 Twenty-month-old Indian startup airline Vistara plans to adjust its strategy to fly internationally following the establishment of a new civil aviation policy in the subcontinent that allows carriers with 20 aircraft to fly abroad immediately. The previous mandate called for a minimum of five years of domestic flying with 20 aircraft.

Against a background of a booming economy and India’s fast growing aviation industry, Vistara expects to launch its international operations by 2018. Talks have begun “with two airlines for partnerships [to foreign destinations],” confirmed Phee Teik Yeoh, CEO of the Tata Sons-Singapore Airlines joint venture. While it has applied for a code-share agreement with parent Singapore Airlines, Vistara has signed 12 interline agreements including those with British Airways, Finnair, Air France-KLM, ANA and JAL.

Fleet addition has proved steady. “By June 2018, Vistara will get all new 20 A320s,” said Yeoh. The airline’s 13th aircraft will arrive in October, increasing its 430 weekly frequencies to 515 to 18 destinations. The first of seven CFM Leap-1A powered A320neos arrives next April. Yeoh said that the airline is also considering new widebodies.

The airline relaunched a frequent flier program on September 26, which Yeoh called “the fastest earn and burn, redemption and elite tier upgrades” compared with competitors Air India and Jet Airways. “We are confident the revamp will draw more passengers to Vistara,” he said. “Today we are reinventing our [frequent flier program]…There will be more [announcements] soon.”

“In another two years, Vistara is likely to match Jet Airways network,” said Vishok Mansingh, CEO of Mumbai-based consultancy CAV Aero Services. “This is good time to woo passengers to join their [frequent flier program] as it is tied to SIA, which is a big advantage.” He added the Star Alliance could likely make Vistara its regional alliance partner in coming years.

The Vistara Board recently decided to invest $37 million to enlarge its footprint in India, said Yeoh, who added he expects further infusion of funds. Already, Vistara has increased aircraft utilization, and reconfigured all aircraft by reducing the number of its business class seats by half—to eight—and premium economy by one-third,” said Yeoh. “This has done us good. We have achieved more revenue per flight basis,” said Yeoh.

“We have found that eight business class seats give a yield of 24 economy seats in the same space,” added Yeoh.

Since March, fare wars in India have cut profits severely. “We have tried to tailor pricing to market demands, though it is not reckless pricing,” said Yeoh. Facilitated by an Amadeus revenue management system that tracks profiles of bookings, historical data of competitors and loads, “the system has helped us price intelligently,” he explained.

In India, excess seat capacity relates to the rate at which airlines bring in aircraft and infrastructure constraints at airports. “Airlines are not free to choose to which airports to go to and are forced to operate to airports that are congested with few slots available in peak hours. This has made the situation worse,” said Yeoh.

Being ruthless with cost efficiencies, Vistara claims to be “lean and mean,” with an employee to aircraft ratio of 1,200:13. “Margins are wafer thin and in India there is a high cost of doing business,” added Yeoh. “We drive hard negotiations with our vendors who have dealt with SIA before. We have been able to harness good deals even for 20 aircraft.”