Thursday, August 29, 2019

Can Vistara fly in the face of severe competition by its low-cost rivals?

As with most sectors, India aviation too is a price-sensitive market. One of the success recipes of low-cost carriers is the low prices they offer compared with full-service competitors. Little wonder that LCCs have grown exponentially and accounted for more than 80 percent of the market over the last decade.

Popular full-service carriers like Jet Airways and Kingfisher have died painful deaths, leaving behind thousands of crores of debt. Flag-carrier Air India has been no exception as it has mounted a debt of Rs 58,000 crore.

That leaves us with just one privately-held full-service carrier — Vistara.  Reports emerged that Vistara suffered a loss of Rs 831 crore in FY-19 against a revenue of Rs 2,994 crore. A year back, it reported a loss of Rs 431 crore. The rise in the losses has been attributed to 23 percent higher crude oil price and a weakening Indian Rupee.

Though these are early days, it begs the question whether India's aviation market has a place for successful full-service airlines. Are these airlines destined to perish?

Jet and Kingfisher out with grand dreams. Even if we were to attribute Kingfisher’s death to its lack of aviation antecedents because it was promoted by liquor baron Vijay Mallya. But what about Jet Airways? The airline’s promoter was an aviation veteran Naresh Goyal who was well experienced with the travel industry. Jet Airways even enjoyed at one point access to the deep pockets of Gulf airline Etihad as well.

Given this turbulent history, what awaits Vistara?

For answers, we first need to understand how Vistara was born. The airline is a joint venture between India's Tata Group and Singapore Airlines, each with a storied corporate history.

For the Tata Group, Vistara was a natural answer. The company has a rich aviation history, including creating India’s first airline, which eventually became Air India. Due to its long association with aviation, the Tatas have long tried to possess Air India but in vain.
28/08/19 Shivam Vahia/CNBC TV18
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