VISTARA’S VIBE: Tuning into a resurgent India

Vistara has only been flying since January, but India’s newest full-service carrier already has its sights set on skies beyond the crowded domestic market.

by CHIEF CORRESPONDENT, TOM BALLANTYNE  

April 1st 2015

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Forty-six-year old Phee Teik Yeoh, CEO of India’s newest airline, Vistara, is making no secret about his ambitions for the Tata/Singapore Airlines (SIA) carrier. Read More » After only four months of flying domestically, he confirmed the full-service airline has plans in place to fly internationally, to destinations as far away as the U.S., Europe including London, with Africa also within Vistara’s long-term ken.

Luckily, Yeoh is a patient man. As of now a barrier to a global presence for Vistara remains in place: the infamous 5:20 rule, which requires Indian airlines to have operated for five years and have a  minimum fleet of 20 aircraft before it receives permission to launch international services.

Civil Aviation Minister, Ashok Gajapathi Raju, has indicated publicly, on several occasions, that India’s new government favours abolition of the rule. “We are glad the government is reviewing this policy and is in favour of abolishing it,” Yeoh told Orient Aviation. “We definitely have international aspirations. However, to prepare for international flying, we need to do some preparation at our end as well. So, as and when the 5:20 rule goes away, we will re-strategize and gear up for international skies as soon as possible.”

'We are at a cusp in Indian aviation development '

Phee Teik Yeoh Vistara CEO

Yeoh said the U.S. is an exciting future market for the carrier, but “many cities in Europe will also be interesting for us”. “Almost 70% of India’s outbound traffic is westbound. But it is not only us who will benefit from 5:20 going away,” he said.

“As you know, Indian carriers cannot fully utilize their bilateral flying rights for overseas destinations. This is not good for the economy as well as the sector. “In fact, once the 5:20 issue is ironed out, India can be showcased globally as an attractive tourism and investment destination that also will provide employment opportunities to millions.”

Another important element in Vistara’s strategy is its ability, as an Indian carrier, to fly more frequently to Singapore, a situation SIA would welcome after being knocked back on establishing new routes into India in the last 18 months.

At this stage, the Vistara team will require 12 to 18 months to source the aircraft needed to start long-haul operations. Despite the government signaling its intentions to abandon the 5:20 rule, the change won’t come without some strong opposition to liberalizing Indian aviation.

The Federation of Indian Airlines, whose members include Jet Airways, IndiGo Airlines and GoAir, are fighting the proposed changes. They argue it would give Vistara and another new airline, AirAsia India, an unfair advantage over longer established carriers such as themselves.

Until now, long haul rivals Air India and Jet Airways, as well as other Indian carriers flying internationally, including SpiceJet and IndiGo, have limited their networks to regional destinations including Sri Lanka, Afghanistan, Singapore, Maldives, the United Arab Emirates, Nepal, Thailand, and Oman.

Campaigning for the end of the 5:20 rule won’t be Yeoh’s first battle with the famously infernal workings of India’s Directorate General of Civil Aviation and its provincial counterparts. India’s Economic Times summed up Yeoh’s persistence in winning over aviation officials in an article in January. Unnamed ministry officials told the newspaper: “He used to come and sit with us, with a thick sheaf of application papers, and ask us politely, but firmly, to point out the mistake that was holding up a particular approval. He used to do this over and over again, whenever paperwork got stuck,” the ministry official said.

Nor should managing the transition from a solely domestic carrier to an international airline present any problem for the CEO, who moved to Delhi to set up Vistara, assisted by a small team, in late 2013. A first class honors chemistry graduate from the National University of Singapore, Yeoh joined SIA as a network planning analyst and worked his way up to senior positions with the airline in the U.S., Britain and then Singapore, where he was a divisional vice-president before he was appointed to run Vistara.

The board and Yeoh’s executive team are balanced between Tata and SIA staffers. Chairman Prasad Menon, board director Mukund Rajan, chief financial officer, Niyant Maru and chief human resources officer and head of corporate affairs, S. Varadarajan, are from Tata. Chief commercial officer, Giam Ming Toh, is from SIA as is board director, Swee Wah Mak, SIA’s executive vice-president commercial.

The board and the executive team reflect the airline’s 51:49 ownership structure, but it is being made clear that SIA’s corporate philosophy will shape the airline’s development.

Yeoh told Orient Aviation: “SIA has grown over the years to a brand recognized internationally as one of the world’s leading airlines. SIA’s name and the famous Singapore Girl are synonymous with warmth, quality and efficient service.

The birth of Vistara 2013 April: Joint venture partners, the Tata Group (51%) and Singapore Airlines Ltd (49%) applied for a licence to launch a new full service carrier with the Indian regulatory authorities. The application produced furious objections from several airlines and politicians, based on their view that only established airlines should qualify for direct foreign investment. 2014 Midway through the application procedure, the government changed some of the rules and the airline, which had yet to be named, had to re-start the application process. As a result, the launch of the carrier was put forward from October, 2014 to January 2015. August: The Tata Group and Singapore Airlines (TSAL) christens its airline Vistara, which was derived from the Sanskrit word, vistaar, meaning limitless space. September: Vistara accepts it first aircraft, an A320, and unveils its livery three weeks later. December: After months of bureaucratic delays, Vistara CEO, Phee Teik Yeoh, announces the carrier has received its Air Operator’s Permit (OAP). Bookings open for the inaugural flights from Delhi to Mumbai and Ahmedabad. 2015 January: Vistara’s inaugural flight takes off for Mumbai from its Delhi hub on January 9. February: Vistara’s fleet increases to five Airbus aircraft and the Delhi-Goa route commences. March: Vistara launches Delhi-Hyderabad services. April: India’s north eastern cities of Guwahati and Bagdogra are added to Vistara’s network.

“It is this customer-centric focus, both on the ground and in the sky, that SIA brings to this great partnership. We have tried to raise the bar for the industry by bringing in global best practices, out-of-the-box thinking and the best talent,” he said.

“For instance, our FFP (Frequent Flyer Program) cross participation is a unique offering for the customers of both airlines. We will give customers of our partner airlines easier access to the sectors we service under the airline interline agreement. We would like to fly international as soon as the regulator allows us. When we do, I am sure there will be more opportunities to integrate with the SIA network.”

Yeoh is acutely aware of the challenges of Indian aviation. “Aviation is a fiercely competitive sector, where the cost of operation is very high. To achieve sustainable growth and financial viability, the right support, in terms of reformist policies and tax revisions is required,” he said.

“To improve the viability of operating in a market like India, we need to tackle some ground realities that continue to hinder progress in Indian aviation.

“We look forward to the government setting actionable goals related to reducing operating costs, developing the Hub concept, [realistic] fuel pricing, cutting state taxes, developing MRO facilities and establishing an environment where market forces can drive growth, he said.

“An environment where the government allows the market forces to prevail would be the ideal condition both for the aviation sector and its passengers. If the industry is to develop as an engine for socio-economic growth, we need to get rid of archaic policies and treat this sector as an enabler for business and growth of the economy,” Yeoh said.

The airline, which gained its AOP (Air Operator’s Permit) last December and launched flights from Delhi to Mumbai and Ahmadabad in January, is initially focused on cementing its position domestically. It has now scaled up to 164 frequencies a week.

“Vistara connects Delhi, Mumbai, Ahmedabad, Goa and Hyderabad. This month, we will begin flying to Guwahati, Bagdogra and Pune,” said Yeoh. “Our sixth aircraft arrived in March. By the end of this year our fleet will be nine aircraft. The aim is to have 20 aircraft by the fourth year of operations.

“We will soon announce more destinations and some exciting enhancements to our product and services offerings, which our customers will definitely welcome and appreciate.”

He refuted suggestions the airline’s launch in a market where most carriers are losing money was ill-timed. “I firmly believe Vistara has entered the market at the right time. More airlines mean a growth in infrastructure, better connectivity and a boost to tourism, thereby enabling businesses and growth of the economy. This means a win-win situation for all stakeholders,” Yeoh said.

He said the establishment of Vistara followed extensive research “which helped us understand the needs and pain points” of Indian airline passengers. “We have designed our offerings with this research in mind,” he said.

“We are hopeful and convinced that once customers experience us they will realise what they have been missing as airline passengers. India has yet to witness a real full-service airline. We are here to redefine the flying experience, both in terms of service and operational experience.”

With most of India’s market dominated by low-cost carriers, Vistara is only the third full-service airline, offering business, premium economy and economy cabins, after Air India and Jet Airways, that is operating on the sub-continent. Its arrival marked the return of the Tata group, the founder of Air India in 1946, to aviation and two failed attempts, in the 1990s and 2001, to set up an airline in India.

Vistara has taken a different approach to its rivals in its launch phase. It has refused to become embroiled in ruinous fare wars, although, like every carrier, it will use discounting at various times.

It also has tried to make fares simple for passengers to understand. Compared with Jet Airways, which has 12 to 14 fare categories, Vistara has seven. According to industry insiders, Vistara’s early load factors have been well below the 75% to 80% airlines need to operate profitably. During the first weeks of operations, the load factor was below 60%, albeit its launch took place at a bad time in the Indian weather cycle. Northern India was blanketed in thick fog and most travelers had booked their holidays before Vistara tickets were available.

Yeoh is untroubled by any of this. He pointed to several positive developments in the industry, including recent fuel price reductions and the stabilization of India’s currency. “At the moment, we are concentrating on scaling up our network and offering our customers the highest service standards,” he said. “We will be focusing on exceeding customers’ expectations consistently, and when we do, breakeven will follow naturally.”

Its A320 148 seat three class cabin accommodates 16 business class passengers, 36 premium economy passengers and 96 economy passengers. It is the first Indian domestic carrier to offer auto check in, designated queueing and premium economy. Its frequent flyer programme rewards members based on the ticket price rather than miles flown.

One early benefit for Vistara has been a three-month exemption from a government requirement to operate flights to financially unviable regions in the country, such as the North East. The exemption has ended and Vistara has had to include in its scheduled services a certain number of its flights on routes that will almost certainly lose money.

Vistara plans to start beaming in-flight entertainment (IFE) content directly to passengers’ personal electronic devices (PED), the first airline in the country to do so. Unlike Air India and Jet, its A320s don’t have seat back screens.

“We are introducing wireless IFE systems. India does not allow Wi-Fi on board aircraft in terms of two-way connectivity, but one-way streaming of content like movies and music is allowed. This will be Wi-Fi one-way connectivity,” explained Yeoh.

Business class passengers will be given tablets to watch IFE, but premium economy and economy passengers will have to stream their entertainment to their own tablets or smartphones.

The airline has stepped up marketing campaigns and offers on its loyalty programme to attract more passengers. It is looking at fly-and-stay tie-ups with Taj Hotels Resorts and Palaces, owned by Tata, and partnerships with international carriers.

Besides operational excellence and service excellence, Yeoh said cost leadership is one of his top strategic imperatives. “We strive to keep costs low by disciplined control of non-customer facing expenses and innovative use of technology. Additionally, we leverage the expertise and resources of our parent brands to reduce overhead costs,” he said.

“We have a healthy mix of insourcing and outsourcing models to keep our operations lean and effective. Being a new organization, we could chose costs we wanted to incur and what we could avoid. We believe that profitability will follow naturally if we keep focusing on our services and cost efficiency.”

Overall, Yeoh is optimistic about the pro-business and growth-oriented approach of India’s newest government. “It is focused on developing the industry as an engine for socio-economic growth. We share the government’s vision of creating world-class international hubs in India,” he said.

“The new government’s progressive outlook already aims at making India a success story, which is evident from the Union budget 2015. Harnessing India’s potential in the global aviation market by opening up the skies would boost the growth of the aviation sector, the Indian economy and immensely benefit the end customer,” he said.

“We are confident the government will do away with restrictive practices and allow Indian airlines their role in the global skies. International connectivity provided by Indian carriers will boost the economy through improved tourism and help India earn the tag of a great investment destination.”