Will Vistara change passenger air transport in India?

For the last quarter of century India has always been about the great promise. Everyone knew about its potential but something always blocks the economy in this country to fully spread wings and fly towards the most advanced countries in the world group and eventually becoming one of them. Indians are well known for their entrepreneurial abilities and their impressive number. India has around 1,25 billion inhabitants, half among which are under 25 and 125 million speak some English. All this potential was constantly wasted due to ubiquitous corruption, detrimental regulations which were blocking land purchases for infrastructural projects, not sufficient power supply, and law which was punishing new ambitious companies, imposing to many duties and too tight scrutiny. However according to various specialist the better times may be just around corner. Since Mr Narendra Modi become a prime minister of India the country has made an impressive progress, becoming once again a great hope for the international economy. Since 26th of May 2014, Mr Modi and his Bharatiya Janta Party (NDA) started to change sluggish Indian economy and think about even bolder reforms which may help to maintain an impressive 7,5% GDP growth in fourth quarter of 2014. The new government must face a really big challenges like persistent poverty or lack of adequate road network. If NDA keeps their voters support the country has a chance to defeat all of its biggest problems.

Air India Express Boeing 737-8HG_flickr_Kurush Pawar-DXB_(CC BY-SA 2.0)

Air India Express Boeing 737-8HG, source: Kurush Pawar-DXB, Flickr, (CC BY-SA 2.0)

This change is visible also in aviation sector. Falling prices of fuel helped the local airlines to improve their financial status. India in general is importing 80 percent of this resource and dramatic decline which took place in past months helped both the countries economy and air transportation sector. The new government additionally considers reducing aviation turbine fuel (ATF) tax which will be surely a great relief for the industry and may cause a huge upswing on this market. Currently the carriers from India pay 50% more for fuel then those from Middle East or Singapore. New Government would like to also change the “5 years/20 aircraft rule” which prevents the domestic Indian carrier from becoming international. The airlines must fly for 5 consecutive years and have a fleet of at least 20 aircrafts to be granted a permission for overseas expansion. According to various analysts India is a one of a kind example how the country is discriminating own carriers. Foreign airlines are not restricted by this law and may freely develop on Indian market. This helped Emirates (EK), Qatar Airways (QR), Air Arabia (G9), Saudia (SV), Singapore Airlines (SQ) or Etihad (EY) become a leading international airlines in India. Currently India is the ninth largest aviation market in the world and considering its population and size (almost 3,3 million square kilometers) it is a rather disappointing result. According to data provided by Directorate General of Civil Aviation, Indian airlines carried 66 million passengers on domestic routes and around 17 million on international ones. Indian airports handled 170 million passengers of both domestic and international passengers. The market is expected to grow to almost 450 million passengers per year in 2020. It is estimated that only 1% of Indian population is flying, which shows the above forecast may be realistic if India  continues to develop in the current pace.

IndiGo VT-IGX Airbus A320-232_flickr_ATom.UK_(CC BY-SA 2.0)

IndiGo VT-IGX Airbus A320-232, source: ATom.UK, Flickr, (CC BY-SA 2.0)

The 9th of January 2015 was a very special day for the whole air transport industry in India. After a couple of years of turbulent times and permanent problems for legacy carriers in this country, the newcomer called Vistara (UK) began flying with a proposition for more demanding and wealthier customers. This is a big gamble and difficult startup as in the recent years only low-cost entrants were able to attract customers. Indian society is very price sensitive but as the country develops and the middle class is gaining importance both Tata Sons holding (owner of Tata Group) and Singapore Airlines (SQ) decided to join forces and create a new premium airline. Tata has no aviation background but in 2014 proved it has big ambitions teaming with Air Asia and forming Air Asia India a low cost carrier which will fight for passengers with Air India Express (IX), GoAir (G8), IndiGo (6E) and SpiceJet (SG).  The joint SQ and Tata application to create an airline has been rejected for 20 consecutive years. Finally, the law has changed and authorities let the foreign companies to have up to 49% stake in new entities. This created a huge opportunity for global players to enter Indian domestic market and benefit from this growing aviation region. Singapore Airlines and Air Asia are the good examples of companies willing to participate in it . Earlier, in 2013 Etihad bought 24% of JET Airways (9W) and added it into its Etihad Equity Alliance. Another 6 new airlines have been granted approval by Indian authorities to launch operation and I guess soon we will hear more details about it.

Visitor has its headquarter and main base in New Dehli and it will initially compete with two biggest legacy carriers in India. Air India (AI) and JET Airways (9W) both have its hubs at Indira Gandhi International Airport (DEL) and plan to complicate Vistara recently started life. State owned AI has been widely criticized for using government money to get rid off Vistara from the market by offering significantly reduced fares on some of its trunk routes. Air India is in terrible financial situation and it will need state support at least till 2020. Splurging out on price wars with new airlines is not a good way to become profitable again and the example of unfair competition.

T3 INDIRA GANDHI INTENATIONAL AIRPORT DELHI_flickr, rajkumar1220_ (CC BY 2.0)

T3 INDIRA GANDHI INTENATIONAL AIRPORT DELHI, source: rajkumar1220, Flickr, (CC BY 2.0)

DEL was the biggest airport in India in 2014, hosting almost 40 million passengers. Delhi was also named the best airport in India by Skytrax. Apart from traditional carriers the airport is an important hub for low cost carriers like GoAir, IndiGo and SpiceJet. It is worth mentioning that no-frills airline IndiGo is the biggest domestic carrier in India with a market share of 36,1% as of December 2014. DEL has a capacity of around 62 million passengers per year but airport authorities predict it will be expanded to 100 million by 2030. Most importantly there is a room for such development and harmonious growth is not at risk. DEL has just 2 passenger terminals, named T1 (domestic) and T3 (domestic and international).

Vistara_flickr_BOMBMAN_(CC BY 2.0)

Vistara Economy Class, source: BOMBMAN, Flickr, (CC BY 2.0)

Vistara would like to be perceived as a premium brand, positioned above, mentioned earlier, direct competitors and be attractive also for corporate travelers. That is why it will build its network with them in mind, operating to the business attractive cities around the country like Mumbai or Hyderabad. UK has fitted its planes with unique cabin layout. It hasn’t been tried by any of its rival on domestic routes. Airline’s A320s are equipped with 16 business, 96 economy and 36 premium economy class seats. The latter ones are the most interesting. Opinions whether premium economy class introduction is a good move vary in the industry and probably the time will show if the decisions made by Vistara pays off. We should be however aware that behind the strategy chosen by the airline stands Singapore Airlines, one of the most successful and respected carries in the world.

The first month of operation was very difficult. The load factor was only 45,4% which is rather disappointing but it is just the beginning and we have to wait a bit longer to make further judgments about that. Vistara currently has 5 A320-200 with winglets in their fleet, however the airline will gradually increase its number to 13 until 2016. Then they will start picking up 7 A320neo which will arrive between 2016 and 2017. The airline also counts on lifting “5year/20 aircraft rule” which I described above. If such change is made UK will surely begin flying international as soon as possible. By the 1st of March the carrier will fly 164 frequencies per week and will make use of all delivered planes.

The joint venture between TATA and Singapore Airlines and creation of the new airline in India may change the image of aviation in this country however both owners must remember about Kingfisher Airlines which tried to deliver same premium feel and unique brand but failed in the confrontation with Indian price driven market and confusing regulations. I guess the faith of Vistara is very much in hands of Indian government and officials. Once they are able to reform the country and maintain fantastic growth results from the end of 2014, not only UK but the whole aviation sector in India might be successful. If not, nothing will change. The legacy carriers will be fighting for survival and the market will be dominated by more efficient and better adjusted to conditions low cost carriers. Additionally the war for international passengers will be waged between foreign airlines which will tempt Indian passengers with their high quality services and modern planes.

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