As with most sectors, India aviation too is a price-sensitive market. One of the success recipes of low-cost carriers is the low prices they offer compared with full-service competitors. Little wonder that LCCs have grown exponentially and accounted for more than 80 percent of the market over the last decade.
Popular full-service carriers like Jet Airways and Kingfisher have died painful deaths, leaving behind thousands of crores of debt. Flag-carrier Air India has been no exception as it has mounted a debt of Rs 58,000 crore.
That leaves us with just one privately-held full-service carrier — Vistara. Reports emerged that Vistara suffered a loss of Rs 831 crore in FY-19 against a revenue of Rs 2,994 crore. A year back, it reported a loss of Rs 431 crore. The rise in the losses has been attributed to 23 percent higher crude oil price and a weakening Indian Rupee.
Though these are early days, it begs the question whether India's aviation market has a place for successful full-service airlines. Are these airlines destined to perish?
Jet and Kingfisher out with grand dreams. Even if we were to attribute Kingfisher’s death to its lack of aviation antecedents because it was promoted by liquor baron Vijay Mallya. But what about Jet Airways? The airline’s promoter was an aviation veteran Naresh Goyal who was well experienced with the travel industry. Jet Airways even enjoyed at one point access to the deep pockets of Gulf airline Etihad as well.
Given this turbulent history, what awaits Vistara?
For answers, we first need to understand how Vistara was born. The airline is a joint venture between India's Tata Group and Singapore Airlines, each with a storied corporate history.
For the Tata Group, Vistara was a natural answer. The company has a rich aviation history, including creating India’s first airline, which eventually became Air India. Due to its long association with aviation, the Tatas have long tried to possess Air India but in vain.
This left the group with no option but venture out fresh. Air Asia was the first step, but it failed to fulfil Tata Group’s dream for a full-fledged carrier. Once FDI norms were relaxed, a deal was struck between the Tata's and Singapore Airlines, which is among the world's best carriers and is often credited for being a catalyst in Singapore's rise as a developed nation.
Both the parents are cash rich and have a long-term outlook of Vistara. Tata Consultancy Services, a part of the Tata Group, single-handedly generated Rs 31,472 crore as profit in FY-19. Singapore Airlines reported a profit of $ 900 million (Rs 6,400 crore) itself.
Vistara's yearly losses pale in comparison to these riches and the promoters of both these parents are more than capable of taking small hits in their balance sheets. This aspect is important because earlier Etihad was seen as a messiah for Jet Airways. However, the Abu Dhabi-based airline has lost billions over the last few years and in the end left Jet to dry out.
Secondly, Vistara started operations from January 2015 and was expected to be profitable by FY 2019-20. That looks impossible despite the vacuum created by the demise of Jet Airways.
In a hurry to grab prime slots, Vistara joined other Indian carriers and acquired Jet's Boeing 737 aircraft. Problem is entire fleet until then comprised of Airbus A320 or A320 neo though it has placed a firm order for six Boeing 787-9s last year. A mixed fleet is difficult for an airline to operate. But Vistara is looking at the long haul.
Vistara has also been smart about its network. While the country's largest carrier IndiGo has been trying to establish itself on new interior routes, Vistara is only focusing on Tier 1 cities that have sufficient demand. Unlike Jet, Vistara doesn’t have to deal with a hundred aircraft fleet that were deployed on non-premium segments to compete at lower fares.
The airline is also sharply focussed on its target passengers. With help from Singapore Airlines, the in-flight service is undoubtedly the best in India today . Adding to this, its Premium Economy offering is expected to generate more revenue without any considerable rise in operations. It is also keeping a tight lid on costs.
But Indian aviation remains one of the most difficult aviation markets in the world. Red tape, high taxes and cut-throat competition are unlike any other market.
Vistara has been up against all these attributes. Its plans to fly abroad was delayed by the bureaucracy, its finances have been roiled by taxes and it is already facing severe competition on the international routes.
Will the airline be able to fly in the face of these challenges? Time will tell.
Shivam Vahia is a developer by hobby and an avid aviation geek