The Tata Group-Singapore Airlines joint venture, Vistara is now more than a year old in the Indian skies. The only new airline which is a full service carrier in these days of low-cost ones, is in the midst of reconfiguring its aircrafts to reduce the number of seats in business class and premium economy. The move is to face competition from the low cost ones and improve its passenger load factor. Phee Teik Yeoh, CEO, Vistara, spoke to FE’s Bilal Abdi and Sumit Jha about the challenges faced by the fledgling carrier and its future plans of doubling its capacity by October this year. Excerpts:
How do you see Vistara’s performance in the first year of its operations?
I am happy with what we have achieved in such a short span. Despite all the constraints we have managed to achieve an excess of 90% on time performance (OTP) and are on the number one position when it comes to OTP. Our differentiators are not our punctuality as that is taken for granted but it’s our service excellence.
How has the airline fared in terms of turnover at the end of first year?
We are on the right track in terms of sales. we knew that it’s not going to be a walk in the park and we knew that we are not immediately going to be profitable. Since we are not a listed company, we are not obligated to publicly disclose our financial performance.
Vistara has announced reduction of business class and premium economy seats from April 1 owing to low demand. Could you explain what went wrong and how your initial assumption about business class demand failed to materialise?
The historical passenger data has revealed that the market for business class is not as high as we anticipated. Instead of growing there has been an approximate 10% decline in the last two years across the aviation sector. We were aware about regional connectivity scheme as well as the route dispersal guidelines and we knew that the initial configuration of 16 business class seats, 36 premium economy seat and 96 economy seats will not be viable on some routes. We have decided we will trim down our cabin to 8 seats in business class, 24 seats in premium economy and 126 in economy.
Now we have 9 aircraft and we will receive 4 more by October making it a total of 13. We are first going to retrofit 4 aircraft before the peak season and then the last 5 will be done after the peak season is over. The new aircraft will be retrofitted. We have made some changes in our seat configuration.
With the new aircraft configuration, do you expect your pay load factor to go up?
We have achieved around 74-75% load factor in the last two months which is okay considering it’s a lean season. We are confident that our load factors will improve in the summer schedule. First we are going to increase our capacity in India by 25%. An increase in flying hours will be our focus, and combined with new aircraft, the capacity will double by the end of summer schedule. By increasing our frequency to Bengaluru and launching new leisure destinations like Srinagar and Kochi we expect our payload to go up.
With the business class and premium class seats not doing as well as anticipated are you planning to give discounts or reduce fares in these segments to attract customers?
We anticipated the demand for business class to grow. The economy was still doing well, but all I can see is that airfare has gone up too high in the business class before the entry of Vistara. Many corporates have shared with me that many of them downgraded to economy and many don’t want to come back unless the price becomes reasonable again. Talking about price we recently announced a value for money 30% discount on business tickets and the response to this scheme has been good.
Could you provide a performance break-up of two segments of seating offered by Vistara?
Our business class and premium economy class was slow to take off initially which reflected in our load factor. When we started in January last year our load factor was 48%, nearly half of other airlines the economy class load factor was in line with the industry. Business class demand is on a downtrend for many years while premium economy is a fairly new product. In a huge market, it takes a while for this new category to sink in for the passengers.
How do you view the regional connectivity scheme and capping of fares? What’s your rationale for lobbying for abolition of 5/20 rule which has been opposed by established carriers?
Regional connectivity is a must in India it must take place. We support the regional connectivity as pursued by the government. However, the route viability of some routes is almost nil. I would like to reinforce the importance of letting market forces prevail to avoid market failure. Capping of fares can lead to market failure. During our interaction with the ministry we proposed a new route to achieve regional connectivity. We shared a proposal to create 4-5 airports of India as hubs. We already have three to four world class airports. We should try to make these airports not just domestic but international hubs which would channel the traffic through the hub and connect to the regional remote places. Strengthening of these airports will lead to deeper and stronger connectivity in India. To promote regional connectivity and in order to create these hubs, we will have to connect India to the world and the only way we can do that is by removing 5/20 rule.