Hot meals not enough: Vistara needs to hammer down costs to LCC levels

New Delhi: Vistara, the Tata-Singapore Airlines joint venture airline, is promising a personalised, premium flying experience. Last night, Jet Airways said it will scrap its no-frills service and concentrate only on the bells-and-whistles service for domestic travellers.

Air India is already promising the moon, thanks to its induction into prestigious global airline grouping called Star Alliance. The two legacy carriers are loss making and debt laden - how will they make ends meet in a market dominated by low cost carriers (LCCs) if they price themselves at a premium?

Experts say the answer to these questions is simple: Vistara, Jet and AI need to make the flyer feel like a king but then hurry to their back-end and ensure costs there are as close to LCCs as possible.

In other words, merely offering hot meals will not work - these airlines need to devise smart pricing strategies while relentlessly driving down costs. And their pricing also needs to remain close to that of LCCs.

Kapil Kaul of global aviation consultancy CAPA says there is little difference between an LCC and economy product of full service carrier (FSC) at present. “LCCs operate from the same airport, offer high frequency services, a very competitive route network, focus on onboard and ground services and reliability/ on time performance. Except a meal on board, everything is almost similar……FSCs need to have a tangible service differentiation compared to LCCs with a cost base to support. Providing meals on board cannot be the differentiation and the strategy for a FSCs. It has to much more meaningful and defining.”

So what more will the new FSCs provide? Vistara CEO Phee Teik Yeoh has indicated that the airline will provide a unique and personalised travel experience and it is likely that the airline will charge a premium from flyers for offering better services than present airlines. We already know that Vistara will offer Economy, Premium Economy and Business Class services and from available indications, it will concentrate on the Business Class passenger to realise higher revenues.

Ranjeet Oak, Senior Vice President, MakeMyTrip says the availability of premium seat offering beyond the standard economy class seats should now go up significantly. “The current business class pricing in Indian domestic market is very high. A Delhi-Mumbai business class seat for next-day travel is available at Rs 30,000, while the economy seats are available at Rs 5000. This gap should come down as Vistara is expected to have a better full service offering for economy class passengers compared to the standard no frills offering by the low cost carriers. It is also expected to add more business class seats.”

In other words, Vistara could price its product in such a fashion that while Business Class travel for corporates etc becomes a tad cheaper, Economy Class travel provides more comforts to the flyer than LCC travel now.

What about costs? The benchmark for profitable growth in Indian aviation has to be IndiGo - which keeps a very tight reign on costs but manages to offer efficient travel options almost always. For example, some years back IndiGo began using ramps instead of stairs for boarding to save time and ease passenger comfort. This means it has eliminated some amount of delays in boarding - which helps costs ultimately. The airline has a robust sale and lease back programme for aircraft which not only allows it to make some money but also keeps the fleet young. This helps in reducing maintenance costs and also reduces delays/flight cancellation due to engineering issues. Other LCCs like SpiceJet are now also offering differentiated services besides raising revenues through ancillary services such as preferred seats, pre-booked meals, priority checkin etc. LCCs anyway have an inherent advantage - no one expects them to serve complimentary meals.

The new full service aspirants will not only have to keep back end costs really low, they will have to manage expectations like hot meals, access to lounges and frequent flyer programmes. All these aspects will mean cost management is that much tougher.

CAPA’s Kaul says since VIstara is a greenfield airline, its costs will be low since it won’t have any legacy issues like Jet. But Jet will have tough time for sure. As for Air India, though its partnership with Star Alliance brings some benefits, critical issues remain on the cost front.