Vistara has found it challenging to sell its premium product in a market which is dominated by no-frill airlines.
Within three months of its launch in January, Vistara, the newest Indian airline, has a fleet of six Airbus A320 aircraft, with which it operates 197 flights in a week.
AirAsia India, which started operations a year back, does 182 flights a week with five Airbus A320s. When it comes to carrying passengers, the story becomes a little different.
Between January and March, Vistara recorded occupancy of 53 per cent, way short of AirAsia India's 74 per cent in its first three months of operations last year and industry average of 83 per cent (Janurary to March).
Though Vistara's occupancy improved to 67 per cent in April, it is clear that it won't be a cakewalk for the airline owned by Tata Sons and Singapore Airlines.
Vistara has found it challenging to sell its premium product in a market which is dominated by no-frill airlines.
It offers as much as 35 per cent of its seats on every flight in the business and premium economy categories. Its seat configuration is: 16 business, 36 premium economy and 96 economy. In contrast, Jet Airways offers just 7 per cent of total seats for business category.
For Vistara, selling the premium economy seats, priced 75 per cent higher than economy seats, was a challenge in the initial days because many companies did not have travel policies around premium economy.
These seats were getting sold only after the economy class filled up. Of late, the sale of Vistara's premium economy seats has picked up as companies are reviewing their travel policies.
Also the airline has lowered its premium economy fares.
On the Mumbai-Delhi route, a premium economy seat costs around Rs 7,200 for immediate travel - at the time of its launch, the seat was priced at around Rs 13,000. Phee Teik Yeoh "After more than 100 days into operations and with our intensive marketing campaign more corporations have started to re-look their travel policy.
The demand has improved significantly," the airline's CEO, Phee Teik Yeoh, told Business Standard recently.
To attract frequent flyers, Vistara has offered top members of Jet Privilege, Jet Airways' loyalty programme, automatic membership of the highest tier in Club Vistara, its loyalty programme. In the past, Kingfisher Airlines had poached Jet Airways' frequent flyers with the same tactic.
Challenges galore Vistara is also hamstrung by its small marketing team, especially in Mumbai. "The airline needs to improve its visibility. It does not do any outdoor advertising.
Also flight schedules on some its routes such as Mumbai-Ahmedabad are not very convenient for business travellers," says the head of a Mumbai-based travel firm. Vistara's lower than expected load factor in the first three months is not because any fault in the airline.
In terms of product and punctuality, Vistara has fared well - its inflight service have been generally appreciated by those who have flown it and it has consistently achieved on time performance of over 90 per cent.
But in order to attract corporate business an airline needs a wide network, convenient flight timing and competitive fares.
Vistara is said to be planning flights between Delhi and Kolkata and Delhi and Chennai as a part of its route expansion.
A Mumbai-Goa flight is also said to be on the cards. From Mumbai, the airline only serves Delhi and Ahmedabad at present but will fly to Bangalore from this month. Sooner or later, Vistara will also have to think of adding new capacity on all its routes.
HSBC Global Research, in its recent report, said that IndiGo dominates the top ten routes in India (based on total number of seats flown on the route) in India. For example, IndiGo accounts for 25 per cent capacity on Mumbai-Delhi, 37 per cent on Bangalore-Mumbai, 32 per cent on Ahmedabad-Mumbai 36 per cent on Delhi-Hyderabad. Vistara's schedule shows it operates point-to-point flights.
"Typically, other airlines carry passengers from Delhi to Kerala via Mumbai or Hyderabad, or to Lucknow and Patna via Delhi.
Such onward traffic can make up to 20 per cent of the network load of an airline. Vistara does not have it (except Mumbai-Lucknow via Delhi). With its parent (Singapore Airlines) being a network carrier, Vistara will need to leverage network flows going forward," says aviation consultant Anurag Jain.
According to Jain, "Vistara's recent pricing shows that it has been forced to drop fares closer to travel time. This indicates that the airline has been unable to fill up seats. This is something an airline should never do. Always discount early, not late."
Early days Vistara says its performance should not be judged solely by its occupancy in the first three months.
"We think it's too simplistic to look at overall load factor data and draw quick conclusions. Our competitors have been in the market much longer and have a bigger network.
They have targeted the routes we operate in with some pricing which is clearly unsustainable," says Vistara Chief Commercial Officer Giam Ming Toh.
Toh says the airline has decided not to sell tickets at prices that wouldn't even cover operating costs. So far as the corporate business is concerned, Toh says Vistara has added a number of clients in a short span of time. He also says it is too early to talk about reviewing Vistara's seat configuration.
"We expect Vistara to have higher load factors of 60-65 per cent from the current quarter. It takes time for new routes and schedules to stabilise and to create the necessary distribution equity in the market," says Kapil Kaul of the Centre for Asia Pacific Aviation.
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