Vistara bets on passengers to pick high fares for superior service

In the highly price-sensitive Indian aviation market, Vistara, a full-service carrier backed by local conglomerate Tata Sons and Singapore Airlines Ltd, is betting it can convince passengers to buy higher fares in return for superior service. Though all airlines in India are feeling the pinch - with debt-laden Air India and Jet Airways struggling to pay staff salaries on time - Vistara says its upmarket strategy is starting to bear some fruit.

The carrier has narrowed its losses and seen average fares rise this year as customers take to its product offering, including a domestic premium economy class, even though ticket prices at most rivals are falling, Vistara CEO Leslie Thng said in an interview. "We have seen a steady improvement in terms of demand, in terms of load factor as well as in terms of the fare passengers are willing to pay," said Thng, a Singapore Airlines veteran who previously ran its Southeast Asian regional arm, Silkair.

India's domestic airline market, the world's fastest growing at 20 per cent a year, represents an enticing long-term opportunity for Tata and Singapore Airlines. But in the shorter term it has turned into a financial sinkhole - high oil prices and a weaker currency are not being recouped in fare prices, driving carriers into the red.

Vistara, which started flying in 2015 and now has 22 Airbus SE A320 narrowbody jets and a 4 per cent domestic market share, has struggled financially as it scales up. It narrowed its losses to Rs 431 crore in the financial year ended March 31 from Rs 518 crore a year earlier, according to accounts filed with the corporate regulator this month, but it faces tougher market conditions this year.

"It was tough. It is getting tougher because of the macro conditions, the higher fuel price, the lower rupee," Thng said of the operating environment.

Budget airline IndiGo, the Indian market leader with a 43 per cent share, is adding capacity rapidly to protect its dominant position even though fares fell almost 10 per cent in the quarter ended Sept. 30.

As a full-service carrier, Vistara is more focused on obtaining a premium ticket price to cover the higher costs of offering perks such as food, a checked baggage allowance and a frequent flyer programme.

Vistara sees a path to eventual profitability through plans to launch international flights as soon as it obtains regulatory approvals and to more than triple its fleet over the next five years to give it a larger share of the Indian market, Thng said.

A major strategy shift is to own some of its fleet rather than leasing all of it. Vistara will own 19 jets worth a combined $3.1 billion ordered from Boeing Co and Airbus earlier this year, and lease another 37, underscoring its growth plans and strong financial support from its top shareholders. "This is a strategic market for them and this is a market where Vistara will continue to grow and be profitable," he said.