Strategic Management Tata Vistara

With Indian Airline industry vying for rejuvenation in terms of comprehensi comprehensive ve inclusion of passengers, there exists strong need of full-service carrier in Indian aviation scenario in 2016. The poor show of Public sector air carrier Air India, record multimillion loss of low cost carrier Spice Jet and failure of premium service carrier Kingfisher Airlines have demonstrated inefficiencies of operations. This calls for a better positioning of airline brand with long-term strategy.

Strategic Management Study on Tata Vistara – Group-04

Jyothi Heda Debabrata Mahapatro Sudhindra Majumdaru

STRATEGIC MANAGEMENT A STUDY ON TATA VISTARA

Table of Contents 1.

Introduction .................................................................................................................................... 2

2.

Trends & Challenges in Indian civil aviation industry: .................................................................... 3

3.

Tata-Vistara Airlines ........................................................................................................................ 3 a)

Way in for Tata-Vistara into the industry: .................................................................................. 4

b)

Best Entry Strategy Used?........................................................................................................... 4

SWOT analysis for Vistara: .................................................................................................................. 5 PORTERS 5 Forces: .............................................................................................................................. 5 PESTLE Analysis of Vistara:.................................................................................................................. 6 c)

Addition of this has increased profits. ........................................................................................ 7 I. Industry: Combined estimated losses of the three full-service carriers — Air India, Jet Airways and newly launched Vistara — stood at $1.28-1.31 billion during the period, with the government-owned Air India alone accounting for a whopping $900-920 million. India currently has nine airlines in the country....................................................................................................... 7

D) Current Status? Reason. ................................................................................................................. 9

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1. Introduction The Indian civil aviation industry is on a high growth trajectory. India has a vision of becoming the third largest aviation market by 2020 and is expected to be the largest by 2030. The civil aviation industry in India has ushered in a new era of expansion driven by factors such as low-cost carriers (LCC), modern airports, foreign direct investments (FDI) in domestic airlines, innovative information technology (IT) interventions and a growing emphasis on regional connectivity. Simply going by the market size, the Indian civil aviation industry is amongst the top 10 in the world with a size of around US$ 16 billion. Between April 2015 and January 2016, the number of international passengers flying to and from India grew by 7.6%, while domestic passenger traffic was up 20.6%. By 2020, India’s airports are expected to carry as many as 369 million passengers compared to the current 190 million.

Source: https://www.theatlas.com/charts/E1NRzwEal

By 2015, there were seven national air carriers namely — Indigo, Jet Airways, Air India, Spice Jet, GoAir, Vistara and AirAsia India. In addition, regional carriers such as Air Costa, Air Pegasus and Trujet provide the much-needed regional connectivity. However, it has not been an easy flight. Over the past two decades, 17 airlines have shut down — the most significant one being Kingfisher Airlines. Companies lost a staggering Rs60, 000 crore during this period.

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In India, air traffic in terms of aircraft movement and passenger traffic has increased during the last three years. The total aircraft movements and passengers have registered a compound annual growth rate (CAGR) of 3.3 per cent and 5.6 per cent respectively during FY11 to FY14. In the April-May period of the current financial year, aircraft movements and passengers have increased by 5 per cent each over traffic handled during the corresponding period of FY14. The freight traffic during April-May, FY15, also grew by 9.9 per cent over traffic handled during the same period of the last fiscal. The Government of India has played a key role in promoting the Indian aviation sector. The Government of India has approved the construction of five budget airports to improve regional connectivity and work on them have started from FY15.

2. Trends & Challenges in Indian civil aviation industry: India's aviation sector has been going through rough skies. The last few years had the biggest names bleeding in the airline space in India. The problem lies in luring the customers. According to a rough estimate, nearly 99.5 percent of the world's third largest economy have NOT seen the insides of an aircraft. Most Indian carriers therefore are facing financial ruin. This indicates that the revenue-source of most passenger airline companies is not expanded yet. Some recent initiatives such as allowing import of ATF are a step in the right direction, but more proactive measures are needed in order to make the industry more competitive and investor friendly. The positive implications of allowing 49% FDI in Indian airlines are slowly becoming evident.

3. Tata-Vistara Airlines Vistara, a full-service airline, is a joint venture between Tata Sons Ltd. and Singapore Airlines (SIA). In Vistara, Tata Sons holds 51% stake and Singapore Airlines hold 49% stake. It is one of the new entrants in Indian aviation industry. The airline, which is offering a three-seat configuration — economy, premium economy, and business class — hopes to attract passengers with its unique offerings. The airline‘s premium economy segment, the first of its kind in the country, offers ample of leg space, apart from an upgraded food menu (from the one offered to the economy class passengers). Its plush interiors are relaxing to the eye with dull and bright shades matching in juxtapose to give the fliers a homely atmosphere. The vibrant food menu, which changes every week, is also expected to hit a chord with passengers. The airline will also be hoping that its cabin crew‘s emphasis to make all passengers comfortable, irrespective of seat configuration, with every passenger being enquired by individually — a common practice among international airliner. The tagline of Vistara is ‘Fly the new feeling’. Vistara has the highest on -time performance records when compared to other domestic carriers and focuses on exceeding customer’s expectation every time.

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a) Way in for Tata-Vistara into the industry:

The way ahead in light with current industry scenario:

Looking at the overall behaviour of Indian consumers across sector, one can easily say that value for money is a key focus for them, especially in the service sector. This means that while a segment of consumers often prefers the cheapest option available, there is a huge segment of consumers, which weighs what, is it that they are getting out of their money. So they may want a specialized service, better seats, meals, lounge access, etc. and they might be inclined to pay premium for it. However, the question is how much premium? In addition, do they really see value out of that premium? If the Tata-SIA's Vistara can work that equation well along with the right cost structure, it can make space for itself in this cost driven airline industry. Vistara has brought some new features for Indian fliers. From a premium economy class to a plush lounge at Delhi Airport and tablets for inflight entertainment for the business class, the airline has attempted to tap the premium market, dominated by Jet after the collapse of Kingfisher Airlines. It has changed the flight menu five times in two years.

b) Best Entry Strategy Used? Vistara started operations when the sector, like most places in the world, had become a field for low-cost carriers. In a country where the cost of running an airline is among the highest in the world and the duration of a flight stretches to 150 minutes, customers were happy to sacrifice comfort for pricing. Therefore, it has been a tough fight for the airline, which brands itself as a premium one. We believe Vistara used the best strategy to enter the market. A global giant and a leading airline come together. Vistara has brought some new features for Indian fliers. A first of its kind Premium economy similar to business class like food and seat option at a lower cost. After Kingfisher’s collapse, there was a need for premium service, which was dominated by Jet air. 

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First Airline to offer THREE CABIN SERVCE. 16 Business, 36 Premium Economy, 96 economy. o Customer mind-set is changing from Price focus to something, which values quality over price. Attempted to tap the premium market, dominated by jet air after the collapse o of Kingfishers.

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Let us look at SWOT analysis for VISTARA:

SWOT analysis for Vistara: 

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Strengths Financial Backing: TATA & SIA are both cash rich company and good credit worthiness. SIA posted a net profit of $623 MILLION(2017-18) Professional Leadership: Tata Sons is a well known and well respected for its leadership. Vistara provides great in-flight experience even in Economy class with food as part of normal ticket.

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Weakness Less number of aircrafts compare to its competitors. Less connectivity. Both International &Domestic o

Excellent exercise has enhanced its presence in the Indian airline industry

Opportunities Govt. regulation change to allow 49% FDI share in civil aviation. Aviation fuel price decreased in last year. Increase in domestic air traffic.

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Threat Indian fliers are more Price sensitive compare to global. Lack of brand awareness.

Ude Desh ka Aam Naagrik(UDAN) Scheme by Govt. is a regional airport

development and "Regional Connectivity Scheme" (RCS)

PORTERS 5 Forces:

Threat of substitution

Threat of new entrants

Competitive rivalry

Bargaining Power Suppliers

Bargaining Power of Buyers

Other mediums of transport

A high capital requirement would be required for a new entrant.

High Fixed Costs

Supply of aviation fuel.

Direct customer have different options who are price sensitive.

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PESTLE Analysis of Vistara:

Political

Economic

Social

Technological

Legal Factors

Environmental

Government Policy

Economic Growth

Development of Tier-II cities

Advancement of technology within Aviation Industry

FDI limits for Civil aviation industry has been increases

Impact of Air traffic on pollution. Impact of better connectivity may increase new Business Opportunities for other sectors of the society.

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c) Addition of this has increased profits.

Vistara, India’s youngest full-service airline, currently has a fleet of 14 A320s – the most recent of

which is a NEO variant, with a further six NEOS on order. The airline plans to induct wide bodies once it becomes eligible to operate international services upon reaching a domestic fleet size of 20 aircraft. Vistara's first international route is expected to launch from the Winter Schedule 2018/19. I.

Industry: Combined estimated losses of the three full-service carriers — Air India, Jet Airways and newly launched Vistara — stood at $1.28-1.31 billion during the period, with the government-owned Air India alone accounting for a whopping $900-920 million. India currently has nine airlines in the country.

II.

Vistara reported losses of around 518 Crore however the top line growth is doubled to 1390 Crore.

III.

Profits are not expected until 2020 at the earliest but the New Delhi-based carrier, which has

IV.

been flying domestically for more than two years, is growing nicely, the Singapore daily-cited analysts as saying. On the pricing front, Vistara has been very competitive. Its fares are usually not the highest, and if higher, the price difference between a low-cost carrier such as IndiGo and the airline is less than a thousand rupees, or specifically – less than INR 500 on the Delhi – Hyderabad sector. In 9 out of 14 cases, Vistara was cheaper than IndiGo on the sector, sometimes by as much as INR 7,292. Below is the table, all fares in INR:

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Conclusion 

Vistara has come in to cater primarily to the business and corporate traveller, and leisure travellers who are willing to pay for a certain degree of minimum services and treatment. The airline’s true competitors are Jet and Air India, but considering the Singapore-airlines

level of service that Vistara ensures, the airline stands one cut above the rest. 

With the airline’s focus on the soft product rather than the hard, a threat it may face is from its competitors – both low cost and full service, who may ramp up their levels of service to match Vistara’s, at perhaps a more attractive price. The advantage Vistara has is the clean

image it comes with, and no baggage of the past. 

Vistara’s network focus seems to be on mature markets, the markets in which most of its

target traveller base is found. Its interline arrangement and loyalty program agreement with Singapore Airlines will allow passengers to experience a seamless travel experience to destinations together covered by the Singapore Airlines and growing Vistara network. 

Vistara is a nice airline that pampers you with class. However, clarifying the selling points of Premium Economy, adding power sockets, and ensuring a uniform brand representation at all touch points is much desired

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D) Current Status? Reason. Their Business Strategy to function with the following had marked its space in the area of Premium airlines

No cheap fares, no discounts

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Loyalty by money, not miles

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Vistara is the first airline in India to offer a value-based frequent flyer program called Club Vistara, where loyalty points are accrued based on actual spending on fares rather than miles travelled. The airline has done away with the physical loyalty card. A registered Club

Vistara member gets points based on the money he has spent on travelling. It is also more transparent and easier for customers to understand. As evidenced by recent industry trends, there is an emerging move away from the traditional mileage-based to a value-based scheme. 

Low-cost thinking, full-service offering

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Vistara is maintaining a lean structure of operations while offering a full-service product.

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No advertisement splash, no fanfare

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Three-class configuration o

Vistara is the first full-service carrier in India to introduce a so-called premium economy class. Vistara’s 148-seater Airbus A320-200 will offer three separate

cabins, with 16 seats in business, 36 in premium economy and 96 in economy class. 

International Flights Expected to be in air by July, 2018

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STRATEGIC MANAGEMENT A STUDY ON TATA VISTARA 

National carrier Air India is no longer India’s least punctual airline. Jet Airways’ on-time

performance (OTP) was judged the worst in eight of 12 months last year, with as many as a third of its departures delayed. Vistara with 76% stood better than both market leaders-Air India & Jet Airways. 

The three together make up India’s entire cache of full-service carriers, the only airlines that

offer frequent flyer program with privileges like zero cancellation and rebooking fees that frequent flyers count on.

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Strategic Management Tata Vistara

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