Is Indian Aviation on the brink of a duopoly?
The Indian Aviation Industry is emerging as one of the fastest-growing sectors in the country as it is undergoing significant transformation. The past few years have remarkably increased India’s stature as an economic powerhouse, gathering global attention. The aviation industry will be crucial in achieving its ambitious goals of breaching the $5 trillion mark and becoming a developed economy by 2047.
Recently, there have been notable developments in the Indian aviation market. Indigo has been consistently growing its market share and has created history by placing an order for 500 aircraft from Airbus. This comes four months after Air India signed a deal with Airbus and Boeing for 470 aircraft. These two back-to-back record-breaking aircraft acquisition deals have reaffirmed India’s unprecedented growth potential in this sector. Air India’s privatisation and acquisition by Tata Group further consolidated the market, positioning Tata Group as a significant player. These developments, coupled with financial struggles and the insolvency of Go Airlines, having filed for voluntary insolvency, have raised concerns about the emergence of a duopoly in this industry. The term is being loosely thrown around because Vistara and Air India are technically still different airlines until their merger, and AirAsia India will eventually merge with Air India Express. However, there is little doubt that Indigo and Air India are dominating the Indian aviation space currently with a combined market share of over 80%.
Several factors could lead to a duopoly in India. This industry is characterised by high operating costs, strict regulations and infrastructure limitations which could create significant barriers for airlines. The pandemic has further worsened these challenges for airlines leading to financial struggles. A potential duopoly in this industry has its opportunities and challenges. A duopoly could increase operational efficiency and stability in this uncertain industry. This allows the dominant players to invest in infrastructure and increase technology adoption. On the other hand, there are worries about lesser competition and its impact on airfares. Reduced competition could hamper the overall growth of the industry.
Currently, airfares in India are unregulated unless the Government intervenes to create a cap on fares. Supply chain issues have led to delays in the delivery of aircraft. Additionally, the temporary suspension of Go Airlines has significantly reduced the flights (150-200 a day). This has led to increased airfares that will stabilise in the long run with the expansion of aircraft fleets. At this juncture, India needs more competition to afford a market. There is hope for competition with airlines like Akasa Air, with impressive growth but in the early stages of the industry. It could become more prominent with the correct strategies. SpiceJet’s financial struggles continue to persist.
The Government needs to revise and improve its policy framework to make this industry more sustainable for new entrants while promoting healthy competition. Along with revising the policies, they should aggressively expand and improve the airport and other related infrastructure if they want the country to be considered an aviation hub. Although the Indian aviation industry has experienced significant transformations and the emergence of dominant players, the notion of a duopoly remains speculative. The financial stability, operational efficiency and market dominance of IndiGo and Tata Group have raised concerns about reduced competition.
Therefore, striking a balance between consolidation and fostering a competitive environment through effective regulation and oversight will be crucial to ensure a healthy and thriving aviation market in India.
Kunsh Khanna, The writer is a student of Economics at KREA University and pursuing his internship with VeKommunicate.