Vistara, the Tata group – Singapore Airlines joint venture was infused with equity of Rs 900 crore by the shareholders recently. This came amid speculation that the Tatas, which also own a majority stake in AirAsia India, would bid for Jet Airways. The bid was never made and the group withdrew after initial talks in November.
Vistara has been in losses since inception in January 2015. That is understandable as the airline industry does not give instant returns. However, the airline has also had a steep learning curve, having to re-configure the aircraft twice in the past.
Change In Course
In the first instance, Vistara cut down on the premium economy and business class seats and added additional economy class seats. In the second, the airline added a row of economy class seats by decreasing the seat pitch. The re-configuration had kept one aircraft out of service for the better part of the winter schedule, with the airline operating 21 aircraft initially and later utilising the 22
nd aircraft partially.
As Vistara planned its summer schedule – its last full schedule with 22 aircraft and all narrow-body fleet — it added Dibrugarh in Assam to its network to potentially cater to the additional need of Available Seat Kilometers (ASKs) under the Route Dispersal Guidelines. It also launched double daily flights to Raipur from New Delhi to occupy the vacant slot left by Jet Airways.
As Jet Airways started floundering, Vistara was quick to claim the vacant slots at Mumbai by launching 5x daily flights between Bengaluru and Mumbai, a route it has served in the past with one frequency at odd hours. The airline also increased frequency to Delhi and added a flight each to Hyderabad and Kolkata.
The start of a station or a flight carries a cost. While for a flight, it is additional capacity on the route, it takes time for the new flight to become popular even at the best of times. Marketing of a flight involves taking it to the trade and business partners who help fill up seats. Often, there is a discount in the initial days.
The same is true with a new station. The costs get amortised over multiple departures and the costs start dropping with time as revenue increase gradually. Eventually, the airline breaks even on that route.
While routes that are seasonal like Leh can be profitable immediately in the high season, not all routes provide the same luxury for airlines. With over four years of sustained growth from Delhi, Vistara has a fair amount of capacity ex-Delhi and now also ex-Mumbai, which covers the two largest business markets in the country. This route also helps fill up the airline’s business class and premium economy products.
Steady Flight Path
Vistara has managed to have a steady schedule in the market with more incremental flights rather than flight changes – a vital tactic to let the market know you by the timings you operate. This has been combined with additional seats, lower capacity in the market pushing up fares and costs at an optimum level because of the fleet.
This heady mixture will most likely deliver an operational profit for the airline. While it is easy to assume that profits will sustain, it won’t be the case.
As Vistara inducts widebody aircraft, the burn rate per month will be high again. By next March, the airline would have many more A320neo in its fleet and a couple of B787-9 Dreamliner aircraft, the first of which is expected in December this year or January next year.
While the airline is funded to sustain this, the cash burn will be similar to how the initial few quarters were, when it tried to build a sustainable brand on a particular route. On international routes, the challenges will be multi-fold, to attract traffic and bookings from the overseas destination and not just India. Some part of it will be buffered with the airline’s strong codeshare partnerships. But that won’t be sufficient to cover the initial costs.
Vistara has been exploring possibilities of inducting aircraft quickly. There have also been reports that the airline will
induct B737 aircraft of Jet Airways. While it will take time to validate and see if the airline does go for brand dilution by inducting the B737s, a rapid expansion will put pressure on yields despite the prevalence of high fares now.
The hyper growth in Indian aviation, led by the low-cost carriers, created an infrastructural bottleneck for the airline industry. Airports were fast running out of slots and night parking and there were severe terminal capacity constraints at major airports in the country.
Against this backdrop and amidst rising fuel prices, the right balance between additional capacity versus matured flight product and network will dictate Vistara’s profitability. But the airline has never had it any better: Air India is the only other full-service carrier, it has a stable network, a robust hub at New Delhi and an optimum number of aircraft.
The skies look good for Vistara.
Ameya Joshi is founder of aviation analysis blog NetworkThoughts.