Two days ago, Vistara surprised industry observers when it announced its “Freedom Fares” — fares that include an “Economy Lite” fare that does not include a complimentary meal. The name "Freedom Fares" refers to customers having the freedom to choose the kind of fare and attributes that suit them best. It was the result of over a year of customer research and meticulous planning, under the code name “Project Purple” that started when fuel prices were still low.
The fares certainly got a reaction. The immediate reaction was bipolar — people either loved the idea and said this would be a game changer, or they hated it and said we had lost the plot. Several people did not mince words in stating this, tagging our parent companies Tata Sons and Singapore Airlines on social media.
I spent a good part of the past two days personally responding to messages on social media, countering misconceptions and explaining why we felt that what we were doing was empowering customers and not hurting them. And telling people to just wait for the fares to launch, they’d be pleasantly surprised.
One Twitter exchange summed up the extreme reactions: Rishi Seth (@sethrishi) tweeted, “As any student of strategy or of [Marketing Guru Michael Porter] will tell you, this is a horrible, horrible, idea for a full service carrier.”
Within minutes, Ellis Taylor (@Flightglobal_ET) responded “… except that is seems to be working for carriers like Delta, American, Air NZ, British Airways…. I could go on. As Mr Porter might call it, [it is] an integrated strategy that meets the needs of different customer segments”.
NK (@NaraayanKannan) added “I think @airvistara has targeted a new segment very smartly”.
So, which is it? Have we lost the plot and sold our soul? Or are we doing something that makes good business sense and benefits customers?As one of the champions behind this idea, I am of course convinced that it will turn out to be a huge winner for all stakeholders, and here is why:
Vistara Freedom Fares empowers customers to pick the fare with attributes that suit them best for their travel requirements on a given trip. Our Freedom Fares are a lot more than just ‘Economy Lite’ that has captured the most attention as it does not include a meal. We are offering “Standard” and “Flexi” fares at just a few hundred rupees more than Lite fares that come with a host of benefits and address a key sore point with travelers: while Lite fare are not changeable or refundable, standard fares have lower change and cancellation fees than earlier, and Flexi fares allow free change and cancellations. Yes, you read that right – free changes and cancellations at reasonable fare levels! Until now, the so-called “Flexi fares” were 5-10 times the fare of the low fares, and no one bought them. Customers were held captive to the onerous terms and conditions of the low fares. But now they can have their cake and eat it too – free changes and cancellation at fare levels that are just a modest increment over the lowest fares!
The fare differential is actually reasonable. For the Delhi–Mumbai route on September 2, for example (this is a random fare check I did as I write this), the difference between “Lite” and “Standard” is less than Rs 300. The difference between Lite and Flexi is less than Rs 1000. So, for less than Rs 1,000, you get not just the meal, but also an extra 5 kg check-luggage allowance, priority handling, and free change or cancellation!
Customers also get higher luggage allowance (both check-in and carry-on) if they buy standard or flexi fares. This alone can make the fare difference more than worth it. On top of that, flexi fares include free priority handling (priority check-in, luggage, and boarding). The value proposition is just phenomenal.
“Lite” fares do not mean Vistara is now an LCC – these fares are designed to address the most price sensitive segment more effectively than we have in the past and aligns our cost of serving that segment with the product attributes that are valued by that segment. Why make customers pay for a meal (and have us bear the cost of the meal) if they do not want it? Why make them pay for flexibility if their plans are fixed? Why make them pay for things they do not value? Unlike at LCCs, Lite fares are optional, not the default - we expect the majority of our customers will be on Standard or Flexi fares. Lite fares they still also include 15 kg free checked luggage allowance, and customers on these fares still get the great service on the ground and in the air that Vistara is famous for.
Our Club Vistara Platinum and Gold customers still get all their soft benefits on Lite fares. This includes priority handling and lounge access. We do not believe in differentiating service levels for our most loyal customers, regardless of what fare they pick.
So, there you have it. With Freedom Fares, we are turning the pricing model on its head and making more features and benefits available to customers than ever before, at very attractive and affordable fare differentials. What is in it for us? Well, in addition to more efficient customer segmentation, it allows us to sell fares — or attract customers to buy fares — that are more than just the lowest available fare. While this may seem like a minor point, it is a huge win-win for both customers and us. We increase our revenues while giving customers more choice, greater benefits, and enhanced peace of mind.
And we align our costs to what is valued by different customer segments. At the end of the day, we are evolving to meet the changing needs of air travelers in India. We are taking best practices from around the world and adapting them for India. We are trying to create a basis for customer choice other than just price competition. And we are trying to support the government’s desire for a more customer-friendly pricing regime where we address the No. 1 pain point of customers, which is high change and cancel fees, in a practical manner.
Along with Freedom Fares, we are also introducing our free streaming on-board audio and video entertainment called “Vistara World” as we continue to invest in delivering the best customer experience for air travelers in India. And what if a Lite customer gets a bit peckish while watching the excellent free entertainment on Vistara World while admiring the soft mood lighting on our Airbus A320 Neos? They can always buy an item from our on-board menu called “Café Aubergine”, and pay with a simple swipe of their card and be handed an itemized printed receipt with GST details by our amazing award-winning cabin crew. Life is good when you fly Vistara!
Sanjiv Kapoor is chief strategy and commercial officer at Vistara.
Disclosure: Vistara is one of the launch partners of CNBC-TV18.com.