Did IndiGo miss 'premium economy' flight?

The domestic aviation sector is set for a smooth ride after the pandemic turbulence. The competition is hotting up, while the prices of tickets are cooling down.

Air India, under its new parent Tatas, is readying an expansion plan. The carrier has leased 25 Airbus narrow-body aircraft and five Boeing wide-body planes and is looking to introduce premium economy class in all the newly-leased planes.

Premium economy is unique. It has more luxury than the economy segment, but it is also a compromised version of business class. The tickets can cost up to 50% more than economy on some high-demand domestic routes.

The premium economy product offers larger seats, better meals and includes priority boarding and baggage handling, while Business class is a step above the premium economy with extended recline comfort, personal storage space and much larger seats. The economy segment is a leg below the premium economy, with 28 to 30 inch seat pitch and lesser recline adjustability.

Experts say the premium segment is the most optimum product in India. If we look at the economics of the premium economy in terms of per sq mt of area it takes, the returns are almost 33% higher than an economy, said an analyst.

Currently, Vistara, a joint venture between Tata and Singapore Airlines, is the only airline in India that offers premium economy class. Globally, major carriers like JetBlue, British Airways, Virgin, Cathay Pacific, have some capacity in the premium segment. Some experts say Vistara's premium economy segment is doing much better than expected.

Recently Vistara CEO said the premium economy got a lot of attention in the pandemic as people were cautious about social distancing and seeking comfort. He added that subscription to the premium segment went up 5 to 10 per cent.

Now, with Air India joining Vistara to venture into this category, has India’s biggest airline and budget carrier IndiGo missed out on the opportunity?

Rohit Tomar, Managing Partner, Caladrius Aero Consulting LLP says IndiGo still has the best opportunity to look at premium economy segment. IndiGo's target segment is different. If the focus is on next leg of growth, then such products could be considered. 

IndiGo’s strategy of low-cost air travel is completely different from, say, Vistara, which prides itself on providing a memorable flying experience. Vistara has defined its strategy as a function of class, and caters mainly to corporate and leisure travellers, who see business class as a touch expensive, but are averse to economy travel either.

On the other hand, IndiGo earned the market leader tag by focusing on affordability and lower-income groups. It has been one of the few airlines that has been able to consistently generate profits over the years.

With a fleet of 281 aircraft including 35 A320 CEOs, 146 A320 NEOs, and a market share of nearly 59 per cent, industry experts are on the same page that IndiGo is already sitting on a world class product, which is embedded deeply in the Indian market.

Mark D Martin, Founder and CEO of aviation consultancy Martin Consulting, said it doesn't make sense for IndiGo to go for premium economy or other higher classes. Having said that, whether the airline would get into a higher segment product will depend on what kind of market opportunity IndiGo sees for itself from these products. Experts see a negligible opportunity cost for IndiGo as it never went for the premium economy segment.

Speaking to Business Standard, Satyendra Pandey, Managing Partner, aviation advisory firm AT-TV don't think IndiGo has missed an opportunity. Premium economy doesn't work in all markets. 

3) Even IndiGo's international focus is on short to medium haul flights.

Moreover, the premium economy category also depends on the travel time. For most of the short haul travel routes that IndiGo operates, the premium economy segment could be futile.

Premium economy is an opportunity for IndiGo worth exploring in the future, especially when extra long range Airbus A321 XLR joins its fleet from mid-2024. But it has certainly not fallen behind the curve as it has established a product that caters to a large segment of Indian flyers.