After years of caution, India’s Tata group is now expanding its two airlines in the country.
The salt-to-software conglomerate, which pioneered commercial flights in India in the 1930s, re-entered the sector in 2014 with Air Asia India, a joint venture (JV) with Malaysia’s AirAsia Berhad. It now holds a 51% stake in this JV. Tata Sons, the group’s holding company, also owns Vistara, a 51-49 JV with Singapore Airlines (SIA) launched in 2015.
However, it is only now that the storied business group is thinking of a bigger role in Indian aviation, adding more aircraft and making overseas plans.
The Tatas’ two airlines together account for a less-than-impressive piece of India’s fast-expanding aviation pie.
In the January-March 2019 quarter, the domestic market share of AirAsia and Vistara stood at 5.5% and 4%, respectively, trailing IndiGo (44%), SpiceJet (13.6%), and even GoAir (9.2%), data from sector regulator, the directorate general of civil aviation (DGCA) show.
In AirAsia’s case, some of the blame can be traced to an unstable top deck. Its first CEO, Mittu Chandilya, left the airline abruptly in 2016. Two years later, his successor Amar Abrol quit, returning to the Air Asia Group’s headquarters in Malaysia.
Vistara, too, had turbulent initial years.
Analysts say the airline was not able to create a unique identity for itself. “Vistara does not have its own USP. Unlike IndiGo, which boasts of on-time schedules, or GoAir, which claims to provide extra legroom, Vistara isn’t sure about what experience it needs to give to the flyers,” Mark Martin, founder and CEO of the aviation firm Martin Consulting, told Quartz.
There’s also the fact that the Tatas haven’t been aggressive on expansion. AirAsia has a modest fleet of only 21 aircraft, while Vistara has 22 planes. “They aren’t creating a lot of inventory, compared to rivals, as it may boomerang later,” said Ashish Nainan, aviation analyst at CARE Ratings.
The methodical growth has, however, resulted in a healthy topline. “Since 2016, Vistara’s revenues have doubled every year. It’s been able to cut down losses, which indicates their fares are strategically placed. They do not have to sell tickets at massive discounts,” Nainan said.
AirAsia India, too, reported a near doubling of revenues in financial year 2018.
Now, given the void created in Indian aviation by the grounding of Jet Airways, the Tatas may have found an opportune moment to expand market share as well.
In May, Vistara leased six additional aircraft from BOC Aviation to gain a bigger domestic footprint, it said. The four Boeing 737-800 aircraft and two Airbus A320neo planes are scheduled for delivery later this year. The airline is also increasing its headcount by recruiting around 500 employees of Jet.
Promoters Tata Sons and SIA have already infused over Rs4,000 crore ($600 million) into the airline in the 12 months to April, to fund the growth.
Vistara also plans to operate international flights soon; it received the government’s nod for this in March. Its loyal base of business class travellers may also prove helpful as it launches global operations.
Meanwhile, AirAsia India plans to double its fleet in the next 15 months. The Bengaluru-based airline also plans to launch international operations by October, once it receives the requisite approvals.
It is also focussing on its domestic routes. Last month, it announced its first flight from Kolkata to Chennai. “Flyers in small domestic airports are loyal to the airline (AirAsia India) as it has aced the last mile connectivity,” said Martin.
Analysts say the Tatas are trying separate business models with the two airlines. “While AirAsia shows how to leverage the low-cost carrier model, with Vistara they are eyeing the European market. In the near future, it’s very much possible for Vistara to compete with airlines like Emirates,” said Nainan.