Air Wars

Is India’s Latest Airline Startup Doomed to Fail?


Staff members at the launch of the brand name “Vistara”—a Sanskrit word denoting limitless expanse—for the new airline in New Delhi on Aug. 11

Photograph by Chandan Khanna/AFP/Getty Images

Staff members at the launch of the brand name “Vistara”—a Sanskrit word denoting limitless expanse—for the new airline in New Delhi on Aug. 11

India’s aviation market is notoriously challenging. High fuel taxes and airport fees drive up costs while cheap fares proliferate. Into this tumult comes a new player, Vistara, which aims to start flights in October in a country where airlines have tallied almost $10 billion in losses since 2007.

The main difference at Vistara? Premium service. One of the world’s highest-rated carriers, Singapore Airlines (SIA:SP), owns 49 percent in a joint venture with Tata Sons. Vistara will target business-class travelers, an arena where higher fares could help it overcome some of India’s expensive structural costs. It’s starting with five Airbus (AIR:FP) planes this year and plans to grow to 20 in coming years.

“We are confident we have what it takes to make a significant difference in this market, and we will be the finest full-service airline in India,” Vistara Chief Executive Officer Phee Teik Yeoh told Bloomberg Television.

Despite all the challenges, airlines remain keen to enter the Indian market because of the expected growth of international business and leisure travel over the next few decades. Vistara is likely to face new competition from Jet Airways (JETIN:IN), which aims to scrap its discount operations and revamp its fleet to focus on a premium-class product. The airline, partially owned by Etihad Airways, has not turned an annual profit since March 2008.

The state-owned carrier, Air India, also competes for international business- and first-class passengers. Emirates is the largest non-Indian airline operating in the country and widely considered to have the best premium-class cabins in the market.

In June the Malaysian-based budget airline AirAsia (AIRA:MK) launched an Indian-based operation with Tata and Telestra Tradeplace aimed at the discount segment of the market. That operation started with modest ambitions: two planes, with plans to expand to six.

Bachman is an associate editor for Businessweek.com.

Best LBO Ever
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • SIA:SP
    (Singapore Airlines Ltd)
    • $10.01 SGD
    • -0.04
    • -0.4%
  • AIR:FP
    (Airbus Group NV)
    • $49.07 EUR
    • 0.15
    • 0.31%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus