Here's what the IndiGo-Tata airlines duopoly mean for consumers

For all intents and purposes, India’s domestic aviation market structure appears to have changed into a duopoly of market leader IndiGo and Tata group airlines – Air India, Vistara, and AIX Connect (Air Asia India) – for the foreseeable future. Go First has been grounded, and hopes for Jet Airways’ revival have all but vanished. SpiceJet, which is dealing with its own fleet-related and financial issues, and the newly established Akasa Air don’t seem to be in a position to pose a serious threat right now.

The Directorate General of Civil Aviation (DGCA) most recent monthly domestic air traffic data revealed that IndiGo has emerged as the biggest beneficiary of Go First’s operations being suspended, with the former’s domestic market share with respect to passengers transported rising to 61.4.

The combined market share for the three carriers in the Tata group increased by 1.4 percentage points from April to 26.3 percent in May. The market share of Akasa Air increased by 0.8 percentage points to 4.8%. However, SpiceJet’s market share decreased from 5.8% in April to just 5.4% in May. Go First, which in April had a market share of 6.4%, has not taken to the skies since May 3, when the airline operated by the Wadia group voluntarily filed for insolvency.

Together, IndiGo and Tata group airlines now command a stunning 87.7% of India’s domestic aviation industry, the third-largest in the world and one that is expanding quickly. 

The Air India company has bought 470 Airbus and Boeing aircraft, with the option to increase the order by an additional 370 jets, while IndiGo has close to 1,000 aircraft on order from Airbus. Although the new airline has stated that it will place a “triple-digit” aircraft order later this year, Akasa Air currently has 57 aircraft on order. Nevertheless, given that aircraft deliveries are often spaced out over several years, it might take some time for Akasa Air to compete with the two already sizable and rapidly expanding airline firms.

A duopoly is undoubtedly a source of worry for customers who are already dealing with expensive airfares, even though it may be good news for IndiGo and the Tata airlines. 

When two companies control the majority of a market for a good or service, it is known as a duopoly. In general, it is believed that customer interest and competition are directly inversely correlated, meaning that the greater the competition, the better it is for consumers. By that reasoning, a duopoly is theoretically not a particularly appealing business model for consumers.

According to fundamental economic theory, increased competition typically has a positive impact on pricing, efficiency, quality of goods and services, and market size. In a duopoly, there is a good chance that consumers will pay somewhat higher prices, have fewer options, and see less than ideal innovation and market expansion. Duopolies can be very difficult for new competitors to enter if they are allowed to consolidate and grow, which again results in less competition and options for customers over time.

An airline group that appears to be powerful in intent and financially is being formed as a result of the privatisation of Air India and the impending consolidation of airlines under Tata ownership. For India’s aviation sector, which has seen a lot of airlines close their doors owing to financial duress, the fact that the top two players are financially secure and growth-oriented is extremely encouraging.

However, more competition is also necessary from the perspective of market development, even though there is unquestionably a need for airlines or airline groups with solid balance sheets and big coffers.

India is a very price-sensitive aviation sector that has recently witnessed fierce rivalry between carriers. A duopolistic structure gives the major airlines more control over pricing. Although it might still be a reality on some routes where other carriers have a large presence, from the perspective of the industry, the one benefit could be that it might minimise unsustainable cutthroat competition and predatory pricing generally.

However, it can also result in a situation where the top airlines just lack the motivation to offer sufficiently competitive rates and services. Or even worse, they might be induced into a tacit agreement on airfare levels that would be advantageous to both parties. Undoubtedly, the Competition Commission of India’s multi-year investigation a few years ago turned up no evidence of cartelization among Indian carriers. However, that cannot serve as a justification for dispensing with the possibility in the future.

In India, airline prices are already on the rise. Despite having begun to stabilise the previous year as travel demand increased following the Covid pandemic’s abatement, ticket costs have increased significantly this year, especially in some industries, during the summer travel season. Flyers have been forced to pay exorbitant prices due to the suspension of Go First flights as well as other factors like soaring travel demand and capacity restrictions.

1.32 crore, a record number, represented the total number of domestic travellers in May, an increase of 15.2% from the previous year. And in the years to come, the market is only anticipated to grow. For India’s civil aviation market to see inclusive and long-term growth, there must be healthy competition among various airlines.

Leave a Reply