About the author:
Raghav is a jovial 10th grade student of Sanskriti School in New Delhi, India. Having been raised in an extended family environment, he is community-centred in his focus on public policy. He loves debating, especially around political topics. When not reading The Economist, playing basketball or watching cricket, he is catching up on current affairs.
Abstract
This paper explores the emerging duopoly of Indigo and Air India in the Indian international aviation market. As the sector experiences rapid growth, Indigo and Air India have positioned themselves as dominant players, significantly influencing market dynamics, competition, and consumer choices. The study examines the strategic manoeuvres, market share, and operational efficiencies of both airlines, highlighting their impact on the international aviation landscape. It investigates how regulatory frameworks, government policies, and market forces have shaped this duopoly. Furthermore, it examines the implications for other Indian carriers, global competitors, and the overall trajectory of the Indian aviation industry. The findings underscore the need for balanced policies around regulatory oversight to foster healthy competition, ensuring consumer benefits, and supporting sustainable growth in the sector.
Introduction
A sunny morning in March 1994 marked a new beginning for the Civil Aviation Sector in India as private operators were allowed to operate scheduled services. Fast forward some 15 years later and the Indian skies are brimming with different airline companies – Jet Airways, Kingfisher, Go First, Indigo among others. Low-cost airlines have transformed air travel in India from being a mode of transport used by the ultra-wealthy for vacations and executive travel, to a feasible and practical option for the middle class.
15 years later from this point, there are only 4 airlines or airlines groups with more than 5% market share domestically. Indian carriers today carry less than 45% of passengers flying to and from India (Bhattacharya, 2019). It is safe to state that the Indian aviation market has undergone a transformative journey over the past few decades, evolving from a state-controlled industry to one characterized by significant private sector participation and competitive dynamics. Among the numerous carriers vying for a share of this lucrative market, Indigo and Air India have emerged as the two dominant players, creating a de facto duopoly (Altman, 2013). This development holds profound implications for the international aviation sector, given India’s strategic geographical position and burgeoning economic stature.
Indigo, a private low-cost carrier, has steadily expanded its operations since its inception in 2006. Known for its cost-efficient model, punctuality, and extensive domestic network, Indigo has leveraged these strengths to extend its reach into international markets. On the other hand, Air India, the state-owned flag carrier, boasts a rich legacy and a substantial international footprint (Clark & Vincent, 2012). Following its recent privatization, Air India has been undergoing a strategic overhaul to reclaim its position as a global aviation powerhouse.
This paper seeks to dissect the emerging duopoly of Indigo and Air India, examining how these two carriers have navigated regulatory landscapes, economic challenges, and market opportunities to consolidate their positions. The study begins by providing a historical overview of the Indian aviation market, tracing the evolution of Indigo and Air India. It then delves into the strategic initiatives undertaken by both airlines, including fleet expansion, route optimization, and service enhancements. The role of government policies and regulatory frameworks in shaping the competitive dynamics of the industry is also scrutinized. Subsequently, the paper explores the impact of this duopoly on other Indian carriers, assessing the policy challenges and opportunities they face in a market increasingly dominated by two major players.
Context
To understand Indian carriers in today’s markets, we must first understand how this situation has evolved. As low-cost airlines like Indigo, SpiceJet, Go First and Air Deccan entered the market, full-service carriers like Air India, Jet Airways and Kingfisher Airlines suffered substantial losses. Low-cost carriers were able to offer cheaper tickets by increasing efficiency and using only one type of aircraft, which gave them economies of scale and lowered maintenance costs (O’Connell & Williams, 2006). They made the passenger pay for everything from check-in bags, meals, seat selection etc, to generate more revenue.
In comparison, full-service carriers offered all these amenities inclusive of the ticket price. To compete with low-cost airlines, full-service carriers suffered heavy losses (Deeppa & Ganapathi, 2018). Full-service carriers in the Indian aviation sector were the only ones to serve long haul passengers internationally as they operated wide-body aircraft capable of flying long durations to destinations such as London, Paris and New York. While these routes were profitable, due to huge losses on the domestic front, Jet Airways and Kingfisher Airlines eventually ceased operations while Air India became a shadow of its old self (Ministry of Civil Aviation, 2016).
Consequently, the three big Middle Eastern Carriers (ME3) – Emirates, Qatar Airways and Etihad and other mega connecters like Singapore Airlines captured a large amount of the more than 6-hour market. The ME3 had other advantages like better fuel economics, higher efficiency and oil subsidies provided by their respective governments (fuel for airlines is the biggest cost across the world). They also had a lot of access to the Indian market due to inequitable bilateral agreements signed by the Indian Government allowing them a generous number of seats (Alamdari & Fagan, 2005). Thus, Indian Carriers bled market share and losses.
It is important to note that the sector has been rapidly evolving, with the Tatas having purchased Air India and Indigo having posted 6 consecutive quarters of huge profits. SpiceJet recently acquired new funding and Akasa Air too made inroads by cornering a 5% percent domestic share in less than 2 years (Dwivedi, 2023).
Policy Recommendations
A reasonable fear would emerge – that Air India and Indigo backed by deep pockets and almost 90% of the market will hike prices up to an unreasonable level, adversely affecting the common citizen’s ability to afford this mode of transport. However, the market still has SpiceJet and Akasa Air. Hence the market would not allow prices to be increased more than what is needed to recover costs and make a healthy profit margin. Furthermore, the volumes of airlines may go down if prices rise too much, and the rise is unlikely to compensate for the loss in numbers as the demand is still price elastic (Dhanda & Sharma, 2018). Also, with the introduction of Vande Bharat, for routes that have less than 90 minutes of flying, trains provide serious competition for airlines. Roads too can be a viable option, as infrastructure continues to get better and better.
By implementing the following policy recommendations, the government can create a more competitive, equitable, and consumer-friendly aviation market that not only addresses the challenges posed by the duopoly of Indigo and Air India but also promotes the sustainable growth of the Indian aviation industry on the global stage:
Strengthening Regulatory Oversight: Enhancing the capabilities of the Directorate General of Civil Aviation (DGCA) to effectively monitor and regulate the aviation market. With better resources and skilled personnel, the DGCA can be empowered to conduct more thorough and frequent safety inspections of airlines, airports and maintenance facilities with the intention of enduring higher compliance with international safety standards. The DGCA can also be empowered to impose stricter penalties for non-compliance, which will act as a deterrent against regulatory violations (Clark & Vincent, 2012). Furthermore, enhancing the capabilities of the DGCA can lead to more streamlined regulatory processes, potentially reducing bureaucratic delays and improving the speed of approvals for new routes, aircrafts, and other operational aspects.
Periodic market assessments: Regular assessments of the aviation market to identify and mitigate any adverse effects of the duopoly on competition, pricing, and service quality can be conducted by implementing a comprehensive strategy. The strategy can include forming a specialized committee or task force within the Ministry of Civil Aviation to continuously monitor market dynamics, competition levels, and industry trends (Hegde, 2013). Additionally, the Indian government should conduct regular surveys and studies to gather data on market share, pricing strategies, route coverage and service quality of all airlines. Using the Herfindahl-Hirschman Index (HHI) to measure market concentration would enable the identification of signs of reduced or increased competition from specific airline carriers (Dwivedi, 2023). Finally, promoting anti-competitive markets by implementing and enforcing strict regulations against predatory pricing, exclusive contracts and abuse of market dominance can also be effective policy instruments.
Promoting Market Entry and Expansion: Providing financial incentives, tax benefits (such as reduced Goods and Services tax on aviation fuel and lower corporate taxes for new airlines during their initial years of operation), and subsidies to encourage new airlines to enter the market and existing carriers to expand their international operations is a crucial policy measure (Ministry of Civil Aviation, 2016). The Indian government can streamline the licensing and approval process for new airlines to reduce bureaucratic delays and administrative burdens. It should ensure clarity and transparency in regulatory policies to provide new entrants with a clear understanding of requirements and processes. It should enforce strict regulations against predatory pricing practices to protect smaller carriers and new entrants from being driven out of the market by unsustainable fare wars initiated by dominant players. Furthermore, investing in the expansion and modernization of existing airports and the development of new airports (particularly in Tier II and Tier III cities in India) would help to accommodate increased air traffic and provide more slots for new airlines to operate (Krämer, Friesen & Shelton, 2018).
Enhancing Consumer Protections: Developing and enforce a comprehensive Passenger Rights Charter that ensures fair treatment, compensation for delays and cancellations, and clear information on pricing and services should be a priority for the Indian government. Setting and monitoring service quality benchmarks for airlines, including punctuality, baggage handling, and in-flight services, to ensure that consumer interests are protected would go a long way in enhancing consumer protection within the Indian civil aviation sector. Additionally, the government should mandate transparency in ticket pricing to ensure that passengers are available of all costs (including taxes, fees and surcharges) before making a purchase. Finally, a centralized grievance redressal mechanism must be established by the Indian government where passengers can easily lodge complaints as a consumer and track the resolution of these grievances (Ministry of Civil Aviation, 2016). Another measure that the Indian government should put in place is to implement strict regulations that mandate fair compensation for passengers affected by flight disruptions, including delays, cancellations, and overbooking (Mahtani & Garg, 2018).
Fostering International Partnerships: Promoting international partnerships in the Indian civil aviation sector can be achieved through a combination of strategic policies for enhancing collaboration, attracting foreign investment, and fostering an environment conducive to global cooperation. This can include bilateral and multilateral air service agreements that are negotiated effectively to increase the number of international routes, flight frequencies and traffic rights for Indian airline carriers. The Indian government should also allow for higher levels of foreign directive investment (FDIs) in the civil aviation sector, which would enable airports and related infrastructure projects to attract global capital and expertise (Deeppa & Ganapathi, 2018). To add on to this policy instrument, tax breaks, financial incentives and streamlined approval processes for foreign investors who wish to enter the Indian aviation market must be provided. The government should also work on aligning Indian aviation regulations with international standards set by organizations like the International Civil Aviation Organization (ICAO) and the International Air Transport Association (IATA). Finally, encouraging public-private partnerships for the development and modernization of airports can leverage international expertise in meeting aviation standards (Dhanda & Sharma, 2018).
Supporting Technological Advancements: Investment in advanced technologies, such as next-generation aircraft, digital platforms for ticketing and customer service, and efficient air traffic management systems to enhance operational efficiency and competitiveness should be supported by the Indian government. For this purpose, provision of grants and incentives for research and development in the aviation sector to drive innovation must become a key policy instrument from the government. The Indian Ministry of Civil Aviation must develop measures to support startup incubators and accelerators that are specifically focused on aviation technologies, providing mentorship, funding and resource opportunities to early-stage ventures (O’Connell & Williams, 2006). It must also reduce import duties on advanced aviation technologies and equipment to make them more accessible for Indian companies.
Conclusion
The Indian Aviation Sector is on the cusp of a boom and holds immense potential for Indian carriers. But the players need to get the financing, technical and pricing basics in equilibrium, and fix core issues such as safety and supply chain to truly compete with ME3 and other carriers across the world in a market where the passengers are very cost conscious. This paper emphasizes the need for a balanced regulatory approach to ensure that the benefits of a competitive aviation market are realized in India. It calls for policies that not only support the growth of Indigo and Air India but also foster a healthy competitive environment that benefits consumers and promotes sustainable development in the Indian aviation sector. Through this comprehensive analysis, the paper aims to contribute to the ongoing discourse on the future of the Indian aviation market and its role in the global aviation ecosystem.
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