The domestic aviation sector is set for a smooth ride after the pandemic turmoil. Competition heats up while ticket prices cool.
Air India is preparing an expansion plan under its new parent company Tatas. The airline has leased 25 narrow-body aircraft from Airbus and five wide-body aircraft from Boeing and plans to introduce Premium Economy Class on all newly leased aircraft.
Premium economy is unique. It has more luxuries than the economy segment, but is also a compromised version of business class. On some high-demand domestic routes, tickets can cost up to 50% more than economy.
The Premium Economy product offers larger seats, better meals and includes priority boarding and baggage handling, while Business Class is a step up from Premium Economy with enhanced sleeping comfort, personal storage space and much larger seats. The Economy segment is a leg down from Premium Economy, with seat pitches ranging from 28 to 30 inches and less recliner adjustability.
Experts say that the premium segment is the most optimal product in India. If we look at the economics of premium economy in terms of space needed per square foot, returns are almost 33% higher than economy, one analyst said.
Currently, Vistara, a joint venture between Tata and Singapore Airlines, is the only airline in India to offer premium economy class. Globally, major airlines such as JetBlue, British Airways, Virgin and Cathay Pacific have some premium segment capacity. Some experts say Vistara’s premium economy segment is doing much better than expected.
Recently, Vistara’s CEO said that the premium economy has attracted a lot of attention in the pandemic as people are wary of social distancing and seeking comfort. He added that subscriptions for the premium segment were up 5 to 10 percent.
Now that Air India is joining Vistara to venture into this category, has India’s largest airline and low-cost airline, IndiGo, missed an opportunity?
According to Rohit Tomar, Managing Partner, Caladrius Aero Consulting LLP, IndiGo still has the best opportunity to look at the premium economy segment. IndiGo’s target segment is different. If the focus is on the next phase of growth, such products could be considered.
IndiGo’s strategy for low-cost air travel is completely different from Vistara, for example, which prides itself on offering an unforgettable flight experience. Vistara has defined its strategy as a function of class, targeting primarily business and leisure travelers who find business class a bit expensive but also dislike economy travel.
On the other hand, IndiGo earned the title of leader by focusing on affordability and low-income groups. It was one of the few airlines that could consistently generate profits over the years.
With a fleet of 281 aircraft, including 35 A320 CEOs, 146 A320 NEOs, and a market share of nearly 59 percent, industry experts agree that IndiGo is already sitting on a world-class product that is deeply rooted in the Indian market.
Mark D. Martin, founder and CEO of aviation consulting firm Martin Consulting, said it doesn’t make sense for IndiGo to opt for premium economy or other higher tiers. However, whether the airline jumps into a higher value product depends on what kind of market opportunity IndiGo sees in those products. Experts see negligible opportunity costs for IndiGo because it was never in the premium economy segment.
Speak with business standard, Satyendra Pandey, Managing Partner at aviation consultancy AT-TV, don’t think IndiGo has missed an opportunity. Premium Economy does not work in all markets.
3) IndiGo’s international focus is also on short and medium-haul flights.
In addition, the Premium Economy category is also dependent on the travel time. For most of the short-haul routes that IndiGo operates, the premium economy segment might be pointless.
Premium Economy is an opportunity for IndiGo worth exploring in the future, especially when the extra-long-range Airbus A321 XLR joins its fleet from mid-2024. But it certainly hasn’t fallen behind, having established a product that caters to a large segment of Indian fliers.
