Vistara – a New Star in the Indian Sky?
Analyst Insight by Shabori Das – Senior Research Analyst
Vistara is a new airline launched in January 2015 by Tata Sons and Singapore Airlines. The new airline is a premium player that will provide a three-tier system of pricing, which is new to the Indian aviation industry. With the launch of Vistara, the Indian aviation industry will witness an increase in the number of people travelling by air as the fleet size will increase, along with connectivity across major and minor cities, which will help to move traffic faster. However, this will definitely impact the load factor of other airlines, which is expected to go down. The duopoly of the scheduled airlines will also be challenged due to the new pricing system being offered by Vistara.
Vistara’s USP lies in its pricing strategy
The airline is the first in India to provide scheduled services with a three-tier fare system. The pricing strategy is similar to international airlines such as Virgin Atlantic and Cathay Pacific. This is expected to attract incoming tourists and corporate tourists – both domestic and international. The other two scheduled airlines continue to have only business and economy class in their pricing structures. Vistara, on the other hand, offers economy, premium economy and business class tickets. The pricing is quite different for each class, which is evident from the table below.
Prices inclusive of taxes Delhi – Mumbai Economy Premium Economy Business Class
Vistara US$140 US$211 US$757
Air India US$93 n/a US$663
Jet Airways US$364 n/a US$483
Source: Euromonitor International
Note: Ticket prices from company websites, as of April 2015
Premium economy is a completely new price band for Indian scheduled airlines. Based on the route and number of days prior to the travel date, the difference in the pricing between economy and premium economy may vary between 30-50%, where the latter will be higher. Premium economy will provide consumers with better leg room and food.
Future looks bright
Vistara has plans to operate international routes as well. Speculation is rife that TATA SIA Airlines Limited might acquire one of the smallest domestic players, Go Air, owned by the Wadia Group. As per the government of India, Indian airlines need to have been operational for at least five years and have a minimum fleet of 20 aircraft in order to hold an international flying licence. This possible acquisition would help TATA SIA Airlines Limited fulfil both of these conditions.
As of April 2015, the company had a fleet size of six A320-232 Airbus planes, and covered eight domestic destinations via 197 weekly scheduled flights. Furthermore, the company has already ordered seven more of the same Airbus model and seven 320 neo Airbus aircraft for its future operations. The former are expected to be added to the active fleet by 2016 and the latter by 2018.
Up to 2014 the Indian aviation industry was dominated by low-cost carriers, although they are, strictly speaking, no longer low-cost operators. One of the key effects on the aviation industry of this new launch will be the benchmarking of premium services. As much as India is a price-sensitive market, premiumisation is a phenomenon that is happening across every consumer goods and services industry. Indian consumers are travelling more both for business and leisure and they have greater discretionary income, and they will not shy away from spending the extra money to enjoy better services. Vistara will most likely be the answer to the new generation of consumers with higher disposable incomes who are technology driven and like to travel in comfort.