Vistara, the full-service airline jointly promoted by Tata group and Singapore Airlines, is expected to start operations in a month amid much skepticism over how another carrier -- and not a low-cost one at that -- will survive or thrive in a market that has been extremely brutal for its participants.
India's aviation industry has been a picture of gloom over the last 10 years as high fuel and operational costs, combined with players willing to lose money instead of dropping out, has led to serious wealth destruction for promoters.
In such an environment, Vistara has said it aims to be a full-service "luxury" airline, making analysts wonder there will be enough takers for such a carrier.
Other full-service carriers (FSCs) such as the state-owned Air India and Naresh Goyal's Jet Airways have been saddled with years of losses. The former has been sitting on a debt burden of Rs 26,000 crore and reported a loss of Rs 2,120 crore in FY14. Jet , meanwhile, has turned over a single rupee in profit since 2007 and posted a record loss of Rs 4,129 crore.
The other full-service carrier, Vijay Mallya's Kingfisher , racked up enough losses to sink itself, and along with it, its promoter's control over his group's profitable alcohol ventures.
While in the price conscious Indian market, the low-cost carriers have had it slightly better: IndiGo has consistently managed to stay profitable, GoAir has now found its feet slowly but surely while the script seems to have recently gone awry for SpiceJet .
At least they have won the numbers game: today, low-cost airlines account for 65 percent of the Indian market share and 80 percent of its load capacity.
But analysts continue to wonder how Vistara, despite its focus on personalized services and an "atithi-devo-bhava" (Guest is akin to God) strategy, will eke out enough volumes to make by.
"FSCs need to have a tangible service differentiation compared to LCCs with a cost base to support," aviation consultancy firm CAPA's CEO Kapil Kaul told the Economic Times recently. "Providing meals on board cannot be the differentiation and the strategy for FSCs. It has to be much more meaningful and defining."
This could mean a more streamlined pricing strategy compared to existing firms, according to MakeMyTrip senior VP Ranjeet Oak.
"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," he told FirstPost . "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."
But unlike in the western markets, the line between low-cost and full-service carriers often remains very thin, and in the past, FSCs have been forced to compete on price.
One got a glimpse of what Vistara could be in when CEO of AirAsia (with whom Tata has started the low-cost AirAsia India venture) Tony Fernandes recently admitted there could be some cannibalization between the two Tata joint ventures even as Tata had earlier mentioned the two firms will be operating strictly different spheres.
The opportunity for those who survive remains huge. Currently, the ninth-largest, India is poised to become the world's third-largest aviation industry in the world by 2021.
But the path won't be easy: the government has clearly stated its intention that it wants Air India to fend for itself sooner rather than later while Jet Airways has restructured its business majorly, targeting a return to profitability by 2017. AirAsia has already started operations while six other aviation companies recently got approvals to launch operations.
"There will be a bloodbath. The competition is only going to become more intense Amber Dubey, head of Aerospace and Defense at consultancy KPMG told the Financial Express .
Only the years will tell which company emerges whole.
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