Vistara forays into the International market.
Vistara to begin overseas operations with SAARC, Gulf after June 2018.
Options open to add either Boeing, Airbus or both aircraft to expanded fleet.
Vistara mulls regional routes as part of its long-term growth plan.
In June 2016, the government of India partially scrapped the contentious 5/20 rule, which mandated an airline to have five years of domestic operational experience and 20 planes to become eligible for international operations, by removing the five years of domestic operational experience clause.
The new rules came in amid strong opposition and hectic lobbying by older rival airlines like Jet Airways, Spicejet and Indigo. Under the new rules, domestic airlines can fly overseas provided they deploy 20 aircraft or 20 per cent of their capacity in the domestic market, whichever is higher.
It is to be noted that the newest airlines, the Tata Sons and Singapore Airlines promoted Vistara, and the budget carrier AirAsia India – a budget carrier also owned by Tata and Malaysia’s AirAsia Bhd – were behind the campaign to end the 5/20 rule. Now both are speeding up their fleet expansion plans so that they can fly overseas sooner and compete with local rivals Jet Airways and state-owned Air India. Both are devising their strategies after the government eased restrictions on overseas flights.
Vistara, which started operations on January 9, 2015, connects 17 cities now and Port Blair will be the 18th Indian destination from October. The number of daily flights has grown to 70 and may reach 100 by the end of the 2016. Its every aircraft does a 13-hour duty a day. It is the only airline in the country that offers a three-class configuration: the economy, the premium economy and the business class.
Currently, Vistara has only 11 aircraft at present and will get the delivery of two more A320s by October.
Vistara is not going to get the 20th airplane in its fleet before June 2018. It has said that it would not be rushing into international operations.
Vistara Chief Strategy and Commercial Officer Sanjiv Kapoor interacted with the media recently. He pointed out his Company’s plans : Be it domestic or international, it is not going to be a walk in the park as an Indian airline, since each market is competitive. The airline has a measured approach towards its new venture. We are not rushing into international operations. It’s not a race for us. But we will definitely do it. We will get the delivery of our 20th plane by the first half of 2018. So, with the government retaining the 20-plane clause for international operations, we have the possibility of accelerating that, we are studying that, we haven’t made a decision. Again it is not just a question of get 21 and fly abroad, we need to get the rights, we need to get the slots, we need to get the partnerships in place, a whole lot of things to be set up. So, we are not going to accelerate just for the sake of accelerating. But if it makes sense to bring it in, bring in the 20 aircrafts little bit sooner we will do that but we haven’t yet made that call. Of course, we are reviewing and refining our international strategy.
Kapoor further said that their international operations will begin with the SAARC markets and the Gulf as their present set of planes (A320s) could serve short-haul markets the best.
“The first set of routes that we will launch internationally, will be the routes that can be flown by our existing aircraft (A320s which are narrow body planes by Airbus) which will be routes within three, three-and-a-half hours from our Delhi hub,” Kapoor said.
“So, that means South Asian nations will be our first focus international destinations along with the Gulf,” he said, adding markets like Bangladesh, Nepal, Bhutan, the Maldives, Sri Lanka and even Afghanistan have great potential. Although, 70 per cent of International air traffic from India goes westwards, Vistara opts to go reverse.
Kapoor also said the airline has been witnessing steady increase in its loads factor, which is one of the highest now at 90 per cent economy class and 80 per cent for overall three seating configuration, the airline was expanding its fleet and network at a steady pace and denied it was facing a cash crunch.
Kapoor also said that the airline, however, does not want to miss out on the growth in regional markets, with the civil aviation ministry coming up with its Regional Connectivity Scheme (RCS) while framing policy to link unconnected towns. A presence in regional markets could provide a feed for the airline’s mainline domestic and foreign routes.
“Most full-service airlines the world over have a commuter arm. The nature of (aviation) markets is such that airlines need to feed their hubs and a lot of it comes from small cities, which need small aircraft. There are two ways to do that. Either we get small aircraft or partner a regional airline. I am not talking of it (happening) instantly, but at some point, we will want a regional domestic feed,” Kapoor said.
Kapoor denied the airline was contemplating a regional play to speed up plans to fly abroad.
Kapoor said that the relaxation of the five-year and 20-aircraft rule for flying abroad and RCS were positive measures by the government but capacity constraints at major airports needed to be addressed.
“I do not think we can take profitable 20 per cent (annual) growth for granted until we fix infrastructure problems at major airports and until capacity addition is more measured. Certainly, there is a huge potential in India, but in the next two-three years the kind of aircraft we see coming is way above the market demand growth,” he said.
Earlier this month, Vistara Chief Executive Phee Teik Yeoh had said that the airline was readying a long-term plan for starting international operations and that he would meet the board with a plan within the next two months.
“There is no stopping us from preponing our aircraft deliveries, but we would like to go overseas only when we are ready. It’s not about to be the first, or the earliest, and not so much about how fast we go. I don’t see how all this can be done in the next 9-12 months. Easily, it’s a minimum one-year affair,” Yeoh had said earlier this month.
Yeoh had also said advancing the plane delivery is something that he would not rule out. “Advancing just to go overseas is not good enough. We should not lose sight of the fact that we have domestic operations to run,” he had said.
He had further said that the airline would induct wide-bodied, long-haul planes and consider starting direct flights to Britain and the US.
How soon Vistara launches its overseas operations will largely depend on two factors. One, it must have 20 aircraft. Availability of aircraft — through lease or purchase or a buy and lease back — will affect the timing of Vistara’s International flights service launch. Both the big airplane makers of the world – Boeing and Airbus – are busy fulfilling the earlier orders from IndiGo, GoAir, Spicejet, Air Asia and others. Vistara is way behind in the queue. Vistara should opt for small planes to get to the magical number of 20.
The second factor will be the positioning of service offering itself as Vistara will be competing with some of the best in class carriers. Currently, India has air services agreements with 109 countries, of which only 29 are being used by Indian airlines. As per Vistara, there are plenty of new destinations that can be explored while planning routes. The profile of the Indian consumer is changing fast and so also are their preferences for travel destinations. According to analysts, 45.7 million Indians traveled overseas in FY15. The share of Indian carriers got only 37 per cent share of this traffic.