Tata board wants Vistara to stop premium economy if it remains unviable

A senior executive of the airline said average occupancy in premium economy has been around 70%

Is premium economy becoming a trouble for Vistara? The board of Tata Sons, the largest stakeholder in the airline, certainly feels so and have even asked the airline management to discontinue the service if it proves to be unviable.

In a board meeting held in June where Vistara CEO Phee Teik presented the company’s performance to the directors of Tata Sons, the airline was asked to review the viability of a three class configuration something unique to Vistara in Indian skies.

According to the minutes of meeting submitted by ousted chairman Cyrus Mistry to the Company Law Tribunal and reviewed by Business Standard, Nitin Nohria, a non-executive director in the Tata Sons board said that the airline should put down a timeline of one year after which it should be discontinued if it remains unviable. Nohria said that Vistara remains the only airline which continues to believe there is business from three segments.

For premium economy for which tickets are higher priced than economy but lower than business class Vistara provides service like Priority check-in and boarding, extra baggage allowance, more leg space. Full service carriers in India like Jet Airways and Air India have so far stuck to a two-class cabin configuration business and economy. Vistara presently operates only on domestic routes which are short-haul; price war is fierce and is dominated by low cost airlines.

“A triple class airline in a two-hour leg doesn’t exist anywhere in the world, leave alone India. For such a class to be successful there should be heavy differentiation which can bleed an airline in a market like India,” says a senior executive of a low cost airline.

Has it been able to differentiate enough? Ajay Awtaney, a frequent flyer and writer of airline blog livefromalounge.com feels that there is no significant differentiation from the economy class. “One gets separate boarding facilities but in Indian airports passengers normally huddle together making it difficult, there is metal cutlery and slightly more leg space and seat recline, I am not sure if passengers are willing to pay extra for that, in some routes economy fare is higher than premium economy,” he said.

Vistara however sees no reason to discontinue the strategy. “It is a pioneering concept introduced by Vistara in the domestic market, demand for our premium economy has been steadily increasing since the time we introduced it. Our customers recognize and appreciate the unique value proposition offered to them in the exclusive PEY cabin. We don’t have any plans to discontinue the three-class configuration,” a Vistara spokesperson said.

A senior executive of the airline said that average occupancy in the premium economy section has been around 70% primarily due to demand from corporate travel.

An executive of a travel agency which has a large presence in North India said Vistara’s routes are concentrated around Delhi and Mumbai, the top two metros of India and where corporate travel is fairly high. “With corporates increasingly becoming less generous about travel expense, Vistara’s premium economy can be a very good option, It will attract those who find business-class fares too high for a two-hour flight but are ready to pay more for extra space and personalised service.” he says.

Sanjiv Kapoor, chief strategy officer of Vistara had in earlier media interactions said that the three class configurations were done considering the airline’s international plans as it is necessary to have common domestic and international standards.

Awtaney also feels when the airline starts flying to Singapore and Gulf which is longer than domestic routes; passengers will be willing to pay extra for the services. “With some more additional amenity, I think passengers will be willing to pay a little higher,” he said.