Will Vistara's global foray add to the loss-making carrier's burden?

In the second half of this year, Air Vistara is all set to fly abroad, joining Jet Airways and Air India as the third Indian full-service carrier to fly international routes. A 49:51 joint venture between Singapore Airlines and the Tata group said it will initially fly short-haul destinations within five hours and then move on to middle haul flights with a nine-hour range.

“Our plan is to start international operations in the second half of this year with our existing fleet of Airbus A320s and fly to destinations within the aircraft’s range. At the same time, we are reviewing the type of aircraft we’ll need to support our plans of international expansion so that we can commence medium haul routes (between 5 and 9 hours),” said a spokesperson. Long-haul flights would begin when the time is right, she added.

Although Vistara did not reveal the routes, government officials say the discussions are focused on Singapore, Dubai, Abu Dhabi amongst others.

Will Vistara’s global foray change the international aviation travel business in India even if it does not bid or win the race to buy Air India (though it says it is under consideration).  And will it help Singapore Airlines to expand its global presence? 

Despite three years in the domestic market, Vistara is a small player. With 17 planes and over 22 destinations, it has been able to garner a market share of just 3.5 per cent, pushed behind even by Air Asia (in which the Tatas also have a stake).

With its losses growing — at over Rs 5 billion in FY 2017 — Vistara hopes to break even by 2020-21, according to reports. It lobbied hard to change the 5/20 rule under which an airline had to be in operation for five years and have at least 20 planes to be allowed to go overseas. Although the government removed the five-year restriction, it persisted with the 20-plane rule delaying the airline’s global operations by over a year.

But competitors are sceptical of its international foray: “It’s been losing money in the domestic skies.  And offering fares that are closer to that of low-cost carriers to get such a small market share is not a sustainable model. By going international, it will only increase its losses.”    

Yet, the international market is a different ball game, and Vistara’s global foray will give Singapore Airlines’ international ambitions a leg-up, say aviation experts. Currently, 70 per cent of the passengers from India travels to West Asia, Africa, Europe and America; the rest moves to the east mostly in south-east Asia and Australia. While SIA has a large share of the Indian travellers moving east, it has no share of the larger pie of flights from India to the west. Vistara will provide them with that opportunity by flying both to the lucrative routes to the UAE, Oman, Qatar, London and other European countries by cashing in on the Indian rights to fly there.  UAE, Oman, Qatar and the UK account for 50 per cent of the international market of Indians going abroad. In contrast, Singapore Airlines has just over 6.5 per cent of the overall market.

Vistara’s international foray could also resolve Singapore Airline’s repeated demand to the Indian government to give it more bilateral rights to fly into India and connect more cities directly to the city-state. The airlines with its various subsidiaries like Silk Air and Scoot (earlier Tiger Airways) has almost exhausted its seat quota as part of the bilateral air services agreement between the two countries.  It already has nearly 63 per cent of the India-Singapore market, with the rest being divided between Air India, Air India Express, Jet Airways and IndiGo.

According to Centre for Asia Pacific Aviation research, the India-Singapore route has seen a growth of over 17 per cent in the first eight months of 2017. But the benefit of this has gone to Air India Express, Indigo and Jet Airways. Vistara will be able to launch services to Singapore using the unutilised rights available to Indian carriers and grab part of the share of this growing market from its Indian competitors.

“It’s one way for Singapore Airlines to get over the seat restriction under the bilateral and also to have flights from cities directly to the city-state from where it does not operate today,” says a senior executive of a leading Indian airline. Many analysts say Vistara’s strategy to fly to more Indian cities was geared towards using them as a base for providing direct international flights.

Competitors also say that many Indian carriers, especially low-cost carriers like IndiGo, had burnt their fingers some years ago in entering the city-state because Singapore Airlines had dropped prices sharply. As a result, IndiGo had to withdraw some of its flights. With Vistara’s entry, airlines are likely to unleash a similar price war in that market.  

But the game might be a bit different for Vistara in the high volume India-to-UAE market. For instance, in India to Dubai market, it will be constrained by seats available under the air services agreement of around 65,000 a week. Both sides have exhausted their quota — and requests for more flights have yielded no response. A new bilateral agreement will be under discussion, but one suggestion on the table is to fix seats for the entire UAE instead of separately for the various principalities.

Also, the West Asian market is highly competitive. Airlines like Emirates make money on the onward connections that Indians take from Dubai (about 50 per cent do) by keeping prices on the Indian leg low. But Vistara has opportunities to break into many of the markets like Abu Dhabi where competition is limited primarily to Jet Airways (from 11 cities), while Air India flies only from Mumbai and Delhi. And none of the low-cost carriers like Spice Jet or IndiGo flies to the city.  

The European market also holds a lot of promise provided Vistara offers point-to-point service. Currently, the India-to-London direct market is evenly poised between Jet Airways and British Airways, which have about a 32-34 per cent share each, followed by Air India. However, many travellers also take the alternative of flying West Asian airlines, which heavily discount their fares. But a flight of under ten hours could take a passenger anything between 3 and 5 hours more because of the layover. While that might be acceptable to tourists, it might not be attractive for business travellers. Says a senior executive of a competing airline, “With British Airways fares at a premium, Vistara could easily offer consumers an attractive alternative to Jet Airways and Air India which in any case is up for sale.”

Either way, Vistara’s international foray promises to bring more choices and competition in the global skies.