India's Skies at Crossroads: The Aviation Duopoly
Launching into the Skies: India's Aviation Evolution
Imagine facing a perplexing choice between taking a flight or a train to travel from Delhi to Mumbai. It might seem counterintuitive, right? Well, consider this: "India witnessed a staggering 41% increase in airfares in the first three months of the year 2023." Let's delve into how this surprising development unfolded.
A surge in air travel demand is propelling India toward potentially becoming the world's third-largest air passenger market by 2030, according to the International Air Transport Association (IATA). With the substantial increase in passenger numbers and a flurry of airport expansions and infrastructure investments, the growth potential is evident. In view of this dynamic, IndiGo and Air India have made hefty aircraft orders, signalling their ambitious expansion plans. Adding to the excitement, the relaunch of Air India has captivated customers as the airline returns to its original owners, the Tatas, after decades of government control.
However, the question is whether people are truly aware of the sizzling developments in the aviation sector and whether their enthusiasm will persist as the industry's transformation continues to unfold.
Two Giants in the Clouds: India's Potential Airline Duopoly
IndiGo has made a jaw-dropping move in the aviation world, recently placing an order for a staggering 500 aircraft from Airbus, valued at a whopping $50 billion. This colossal acquisition comes on top of their existing order for 480 aircraft, all set to join their fleet within the next decade. In essence, IndiGo is gearing up to welcome almost 1,000 new aircraft in the coming years.
In a parallel development, Air India, now under the dynamic ownership of the Tata Group, has entered into substantial agreements with Airbus and Boeing, pouring a hefty $70 billion into their aviation ventures. This underscores the undeniable momentum in the aircraft procurement sector among Indian carriers.
The dominance of Indigo Airlines in the market is nothing short of extraordinary, with a market share of 63.4 %. This is a feat that is virtually unheard of in any open aviation market. Air India comes in second, boasting a 9.9 % market share, which expands to a formidable 25.8 % when considering all four Tata-owned airlines together. As a result, a duopoly now reigns over the Indian skies, with these two aviation giants collectively controlling over 89 % of the market.
However, the landscape for other domestic airline companies remains tumultuous. SpiceJet has faced financial challenges and legal issues, while Go First, a budget carrier, filed for bankruptcy during a crucial period of the travel season. The future of Go First remains uncertain, and Jet Airways, another airline that pursued bankruptcy proceedings, is yet to resume operations despite the efforts of new ownership.
Amidst this dynamic environment, Akasa Air emerged as a new entrant, rapidly expanding its fleet to 20 aircraft and securing a 5 % market share within a single year. Although the airline faced an unfortunate setback with the untimely passing of its billionaire owner, Rakesh Jhunjhunwala, shortly after its inaugural flight, industry observers are cautiously optimistic about its potential.
While Akasa Air aims to acquire a substantial number of aircraft by year-end, its current financial standing, with revenue at Rs. 778 Crore and losses of Rs. 602 Crore, underscores its relatively small and less experienced position in comparison to industry leaders. Consequently, smaller competitors like Akasa face formidable challenges as they seek to establish a significant presence in the aviation market.
Airborne Dominance: How India's Duopoly Reshapes Travel
This development holds the potential for better air connections between Europe and South Asia, a move that could make India one of the world's top three aviation markets. IndiGo plans to expand in Europe and East Asia, while Air India is focusing on flights to the United States and Europe. Jyotiraditya Scindia, the Civil Aviation Minister, sees this as a positive sign for India's growth.
However, there are challenges ahead. Nuvama Institutional Equities predicts that airlines, especially Full-Service Carriers, could face ongoing losses of $1.6 billion to $1.8 billion due to factors like aggressive expansion, Air India's restructuring, high fuel prices, currency changes, variable airfares, and supply chain issues.
While a duopoly has advantages, there are concerns for consumers. This includes the potential for higher ticket prices, less innovation, lower service quality, and the risk of collusion between the dominant players. For example, airfares have risen significantly, with fares for the Delhi-Mumbai route jumping by 37 %. Leh, a destination where Go First was strong, saw even higher prices.
​
With just two major players, there may be less competition, leading to less motivation for airlines to improve services. Choices for passengers on key routes could become limited, possibly resulting in higher ticket prices. The reduced competition might also slow down innovation and service improvements.
Additionally, customer service quality could suffer, as passengers might have fewer options if they encounter issues or poor service. Airlines in a duopoly might cooperate to control capacity, which could stabilize prices but limit choices for travellers. Moreover, Air India and IndiGo's increased bargaining power with airports and suppliers could affect fees and additional service costs. It's essential to note that the impact of this duopoly could vary by region, with some routes experiencing more competition from smaller airlines, while others might face more monopoly-like conditions.
Touching Down: Concluding Thoughts on India's Aviation Future
The government has initiated measures to tackle the challenges posed by the airline duopoly, including permitting foreign airlines to invest in Indian carriers. Nevertheless, there remains a pressing need for further actions to foster competition and safeguard the interests of consumers.
To effectively counter the challenges associated with the airline duopoly, the government can adopt a multifaceted approach. This involves encouraging greater participation of foreign airlines in Indian carriers and promoting the emergence of new domestic airlines to enhance market competition. Furthermore, the implementation of price regulations is essential to prevent the imposition of excessively high fares by dominant airlines. Simultaneously, stringent enforcement of competition laws is imperative to deter collusion between these major players and maintain a competitive airline industry, ultimately ensuring that consumers reap the benefits of a vibrant and consumer-centric aviation sector.