Vistara: Mission international

New car, caviar, four star daydream…. Any “cool” kid who grew up in the 1970s and 1980s will recognise that line from Pink Floyd’s ‘Money’, from the hit album Dark Side of the Moon. It’s also a song that you’re likely to hear played on any Vistara flight. That one line alone seems to describe what Vistara wants to be—the four-star dream airline. But more on Vistara’s ambition later. For now, let’s listen to the music.

“We play blues, jazz, and soft rock as our boarding and landing music on our A320neos. Together with the mood lighting, this creates a warm and welcoming club-like atmosphere that appeals to our target segment. This is a place they can relax and feel like they belong, with comfort music from their school and college days in India or abroad,” explains Sanjiv Kapoor, chief strategy and commercial officer, Vistara. The younger fliers, he adds, who may not have grown up on Pink Floyd or even Louis Armstrong, seem to enjoy the music, and the airline has got positive feedback on its playlists.

The club-like atmosphere Kapoor speaks about is something Vistara is trying to recreate, not just through its choice of music, but also through the menus it offers, and the overall ambience. “Vistara has maintained a distinct identity for itself,” says Harish Bijoor, brand expert and founder, Harish Bijoor Consults. He compares Vistara to “what Jet Airways used to be in the old days”.

As one of the youngest airlines in an increasingly crowded space, Vistara, which was launched in 2015, has managed to stand out by refusing to be seen as a low-cost carrier. Its focus on premium offerings has led to inevitable comparisons with that other premium airline, Kingfisher. Of course, Kingfisher came to a bad end, but that was not because its premium positioning did not work. Vistara doesn’t have the same financial baggage that Kingfisher had to contend with; as a joint venture between Tata Sons and Singapore Airlines, its lineage is spotless.

In the three years that it has been in business, Vistara’s positioning has worked in its favour. There have been people more than happy to pay more to get more—more legroom, more food choices, more perks. It hasn’t translated into a healthy bottom line yet, but that’s something nobody is very concerned about just yet. Airlines generally take at least five years to show a profit, and that depends a lot on global fuel price movements as well.

Vistara is now looking at the international market as a way to turn in a profit. “Without international it is very difficult for an airline to make money,” explains Dhiraj Mathur, partner, leader-aerospace & defence at PwC India. That’s why every domestic airline in India today has global ambitions; recently, even a company as small as GoAir has announced its plans to foray abroad.

The opportunity that global destinations present is immense. According to government data (from the tourism ministry’s annual report), the number of Indian nationals departing from India in 2016 was 21.87 million compared to 20.38 million in 2015, registering a growth of 7.3%. And, by 2020, India will account for 50 million outbound tourists, according to a report published by the World Tourism Organization and the European Travel Commission.

Flying abroad is certainly not something Vistara has decided on in a hurry; Kapoor says the fact it was set up as a three-class full service airline is because Vistara always had an integrated domestic-international network in mind.

The question that many in the industry have on their minds is: Will its premium positioning help it take wing in the global airspace? Bijoor is pretty sure it won’t. “Vistara will have to completely rebrand itself for the global inbound aviation market,” he says bluntly. His reason: “Vistara has gotten used to very low standards in the Indian context. One of the worst things that can happen to a brand is that their competition is very low-grade.”

That’s one opinion. Vistara insiders are pretty sure the airline has more than a fighting chance in the global space, especially given that it has already announced a code-share partnership with British Airways. To really understand how Vistara can make a go of its international plans, and whether it can do so by holding on to its existing brand premise, let’s begin by looking back.

The Tata group has a long interest in aviation. In 1932, industrialist, aviator, and chairman of the Tata group, J.R.D. Tata, helped set up India’s first private airline, Tata Airlines, later renamed Air India. In the early 1950s, the Indian government under Jawaharlal Nehru nationalised Air India, much against Tata’s wishes. His successor, Ratan Tata, also a certified pilot, kept J.R.D.’s dream alive. His first serious move in this space was in 2013 when Tata Sons and Malaysia’s AirAsia set up AirAsia India.

AirAsia came with an existing aggressively low-cost character; but Vistara is diametrically opposite. It has so far played for a niche section of travellers, probably banking on fewer passengers paying more money. Except, of course, that it hasn’t exactly panned out that way. The airline has been reporting losses consistently; in FY17, it announced a loss of ₹518 crore.

Could these losses have been pared if Vistara adopted a more aggressive low-price strategy? Perhaps, but that would have meant compromising on the brand image the airline has assiduously cultivated. As Bijoor says: “Brand positioning is everything today.” So, despite Vistara having given in to market forces and slashing fares (it recently announced Vistara Lite, a no-frills low-cost option), it cannot afford to appear to be low cost.

Bigger losses, fewer passengers, fewer routes... That Vistara is still in the game seems a bit surprising. But anyone who’s surprised is discounting the airline’s parentage: Tata and Singapore Airlines, both forces to be reckoned with. There’s also the fact that the airline is headed by seasoned veterans. Last year, Leslie Thng, a 19-year Singapore Airlines veteran, was brought in to manage Vistara.

Vistara is also banking on its international foray being profitable. “One of the key goals when I joined this airline was to go international as soon as possible,” says Thng. What had prevented Vistara was the government’s rule forbidding airlines that had been in business for less than five years and which had fewer than 20 aircraft from going international. Ratan Tata was among those who had lobbied with the government to remove this 5/20 rule, and he was successful; in 2016, the government lifted this rule and Vistara was free to fly anywhere it chose to.

Step one was to buy aircraft, which it began doing. In July, Vistara placed an order for 19 planes worth $3.1 billion from Airbus SE and Boeing. The order, including both narrow- and wide-bodied planes, will allow Vistara to take on domestic airlines and add international routes. “These days the best thing to do is buy new aircraft. They have 15% more fuel efficiency compared to older generation aircraft,” says Basil Kwauk, senior vice president, flight operations.

The logistics of maintaining a fleet of narrow- and wide-bodied planes is what makes international operations difficult to manage, says Ashish K. Nainan, research analyst, industry research, CARE Ratings. He explains that the maintenance for different aircraft itself is a logistical nightmare. “When you are inducting even one aircraft, you need a whole new bunch of people. Even pilots for long haul are different.”

To keep all that going needs resources. Will Vistara be forced to compromise on its premium positioning, and take the low-cost route? “At this point of time, every airline is a commodity. IndiGo tried to brand itself, but it failed quite miserably because it had to fight the price wars,” says Bijoor. Having gone that route, IndiGo is now trying to stay on it by keeping its international operations low cost as well. So far, it has not announced any plans to induct wide-bodied aircraft into its fleet; if it ever does that, an IndiGo insider who asks to be anonymous, says it will be difficult to stay low-cost. At a recent analysts’ call, IndiGo’s interim CEO, Rahul Bhatia, said: “For the moment it is all on the boiler and we are trying to figure out what is the best strategy going forward.”

Meanwhile, over at Jet Airways, the strategy seems clear: fly as many routes as possible, domestic and international. Relying on scale is not something that can pay off for a small player like Vistara, despite its ambitions. “Going international is complicated,” explains PwC’s Mathur. “You need to have bilateral rights, you need to have those routes available. Then there is the issue of getting slots at foreign airports. And the most important thing is you need to get into alliances.” That last part is something Vistara, inexplicably isn’t doing; at this moment, there is no talk of joining any of the three alliances—OneWorld, Star Alliance, or SkyTeam.

In the absence of this, what can Vistara do to make a go of its global operations? Like IndiGo, it will start with short hops. “This is in sync with the vision and mission of the company and how we want to start our international operations—short-haul, mediumhaul and eventually long-haul,” says Thng. The question then emerges is how much of going international will be on the back of the existing network of Singapore Airlines, or SIA, which flies to 62 international destinations. Thng is clear that while Vistara might be using the SIA network in some areas globally, it will forge its own liaisons for most international locations. Vistara’s recent code-share with British Airways is the beginning of this.

The Vistara plan is to partner with SIA for destinations like Australia and southeast Asia. However, SIA, which flies to Europe and North Asia, will not be an ideal candidate to provide feed within those regions, so Vistara is looking at partnerships with airlines in these regions on a bilateral basis. “Singapore Airlines’ interest in partnering with Tata, setting up Vistara, if it was just limited to being a Singapore feeder, it would be a very small ambition. Their ambition, just like Tata, is to tap into the Indian story and growth opportunity, wherever that may be,” Kapoor says.

Through all this, Vistara seems clear that it’s not going to dilute its positioning. “We believe that this market has a section of customers who prefer to travel more comfortably, who would prefer to travel with an airline that gives them value for money and we feel we will be able to be offer that product quite effectively,” says Thng, suggesting that Vistara would be looking at routes preferred by business-class travellers.

The problem, as Bijoor pointed out, is Vistara has not had to contend with competition in its space in the domestic sector. When it enters the far bigger pond of international aviation, it’s going to find far greater competition from bigger players who have been in the business far longer. “Singapore Airlines is gold standard. Then there are people like Emirates, which carry a lot of traffic, again reasonably gold standard. ANA is a classic platinum standard service. Out there, there is a lot of competition,” reiterates Bijoor.

According to DGCA data, there are 91 scheduled international carriers including five Indian carriers—Air India, AI Express, IndiGo, Jet Airways, and SpiceJet—and 86 foreign carriers, and India has air connectivity with 59 countries through 344 routes. The share of Indian carriers in total international passenger traffic from India in the January-March quarter was 60.5%.

Thng is unfazed. “We need to be aware of competition,” he agrees. “But we should not be worried.” There are, of course, issues other than competition that could halt Vistara’s ambitions. Airport capacity, rising fuel prices, policy changes and the like are factors over which it has little control. It’s up to the management to figure out how to deal with these issues, even as it aims for what Pink Floyd called “the high-fidelity first class travelling set”.

(This story was originally published in the September - December 2018 special issue of the magazine)