The Sky’s the Limit: Vistara plans rapid expansion

Vistara plans rapid expansion

Derived from the Sanskrit word Vistaar, meaning limitless expanse – Vistara, a full-service airline in the domestic civil aviation sector, is living up to its name. The airline started operations in January 2015 with its inaugural flight between Delhi and Mumbai and since then there has been no looking back. Vistara has been a frontrunner in terms of on-time performance, mostly achieving rates of above 90 per cent since its inception, and been a trendsetter, introducing a new cabin class – premium economy – on domestic routes in India. The airline reached the 1 million passenger mark in its first year of operations, reflective of the strong appetite and the streamlined focus of its promoters. As of February 2017, the airline held a market share of 3.1 per cent.

Growing network and fleet size      

Vistara currently flies to 19 domestic destinations with more than 530 weekly flights and a fleet of 13 aircraft. The airline has been working vigorously on expanding its network and achieving global recognition. In March 2017, it added a direct Delhi-Leh flight to its network, making Leh its seventh destination in northern India with the other six destinations being Delhi, Jammu, Srinagar, Amritsar, Chandigarh and Lucknow. Further, Vistara has also started daily flight services on the Delhi-Amritsar and Mumbai-Amritsar routes. In addition, the airline is pla nning to fly to new destinations including Thiruvananthapuram, Surat, Bhubaneswar, Lucknow, Raipur and Patna by 2017-18.

Meanwhile, the airline has been aiming to commence international operations from the time it started domestic operations; however, with the earlier 5/20 rule its hands were tied. Now, with the scrapping of this rule and expecting to meet the mandatory 20 aircraft fleet requirement by 2018, Vistara is reportedly set to present its final plans to operate international flights to the company’s board. “We recognise the complexities that flying overseas would bring and the magnitude of work that this would require, and we’re preparing ourselves well for that,” says Phee Teik Yeoh, chief executive officer, Vistara. Thus, it has already commenced the groundwork required, including conducting an international safety audit and exploring partnerships with international carriers. Besides, code-sharing with Singapore Airlines and SilkAir, interline partnerships with 15 international airlines, a revamp of its frequent-flyer programme and preparation for IOSA (IATA Operational Safety Audit) certification are some other steps being taken by the airline in that direction.

Vistara’s fleet is expected to get stronger with the delivery of the first of its seven Airbus A320 neos scheduled in early May 2017. “We will continue to expand our network over the next few months, as the majority of the remaining aircraft (of the initial order of 20) will arrive by the end of the current fiscal year,” says Yeoh. The airline expects its 20th aircraft to arrive by June 2018.

Financial speak

In 2015-16, Vistara generated revenues of about Rs 7 billion, 10 per cent lower than the projected figure, and incurred losses of Rs 4.24 billion. These losses have been attributed to higher expenses towards the maintenance, ground handling, and sales and distribution activities of the airline.

As per industry experts, any full-service carrier, such as Vistara, typically takes at least five years to break even. Hence the losses incurred by the carrier do not ring any alarm bells per se. Nonetheless, the high unit cost in terms of cost per available seat kilometre (CASK) is worrisome. Vistara’s CASK stood at Rs 5.28 in 2015-16 while the revenue per available seat kilometre was recorded at Rs 3.28. The company cites high maintenance costs (about 14 per cent of total costs) as one of the main reasons for the elevated unit cost. To ensure growth, the gap between the two needs to be narrowed, which is likely to be effected by the cost reduction measures that the airline is planning to adopt in the coming months. Vistara’s promoters have recently infused Rs 2 billion into the airline to support its expansion plans.

However, the revenue figures of the airline, which started off with premium pricing, have been impacted due to the ongoing price war among Indian carriers. Vistara has reportedly been struggling to increase its load factor. It has reduced the number of business class and premium economy seats and slashed airfares in recent times. “It may be right to say that we’re not chasing the competition, but are creating a unique space for ourselves,” elucidates Yeoh. The airline has taken steps such as offering a 2 per cent incentive to agents (discontinuing its zero-commission policy), expanding its overseas sales network, among others, in a bid to improve its sales numbers. Determined to serve the market to the best of its abilities despite being in the red, Yeoh adds, “As a new entrant in the sector, we believe in challenging the status quo in the market to disrupt it and bring the ‘new feeling of flying’ to our customers, which would eventually help us get where we want to reach (in terms of being profitable).”

Operational performance

Vistara’s passenger load factor, a measure of efficiency, has gradually improved from 65.6 per cent in 2015 to 75.4 per cent in 2016, reaching 85 per cent as of February 2017. Meanwhile, the weight load factor has increased from 60.3 per cent in 2015 to 67.1 per cent in 2016, reaching 75.4 per cent as of February 2017.

The airline’s relatively low occupancy rates vis-à-vis other players such as AirAsia, IndiGo, GoAir, SpiceJet, etc. may be due to inadequate flight frequency and cabin configuration (three-class configuration in comparison to two classes on other airlines). However, efforts to focus on network expansion may augur well for the airline in the time ahead.

On a positive note, the cancellation rates of Vistara flights, at 0.1 per cent in February 2017, are one of the lowest in the country. Besides, in terms of on-time performance at the four metro airports, Vistara stood at 72.6 per cent in February 2017, behind only SpiceJet (81.1 per cent) and IndiGo (79.7 per cent). These factors have gone a long way in helping the airline carve itself a niche in the segment.

The way forward

With robust expansion plans in place, the airline is expected to grow by leaps and bounds. However, it remains to be seen how successful it is in carrying out its plans to increase its market share to compete with well-established players such as IndiGo and Jet Airways. Besides, with the ongoing losses, the next few years will be crucial for the airline as it will have to showcase better business performance to prevent itself from being an ill-fated start-up like many others in the history of the Indian civil aviation sector.