The aviation industry is one of the most dynamic and competitive sectors in the world. It connects people, cultures, and economies across the globe. India, as the world’s third-largest civil aviation market, has a rich and fascinating history of aviation development. In this article, we will explore how India’s aviation industry has evolved over the decades, what are the current challenges and opportunities it faces, and what are the recent news and developments in this sector.
In 1946, Air India was originally established by JRD Tata as Tata Airlines and in 1953, the government nationalized the aviation industry and merged eight major airlines into two state-run airlines: Air India for international routes and Indian Airlines for domestic routes. These two airlines dominated the market for decades, facing challenges such as high costs, wars, and competition from foreign carriers. In 1994, the government liberalized the sector and allowed private players to enter. This led to the emergence of new airlines such as Jet Airways, SpiceJet, IndiGo, GoAir, and others. Air India remained a government-owned airline until 2021 when Tata Group acquired it again through privatization, returning the airline to its roots.
Current Indian Aviation Market
The current situation of the Indian aviation industry is a result of various factors such as market demand, policy reforms, infrastructure development, technological innovation, and competition. India has witnessed a rapid growth in air passenger traffic over the years, driven by rising income levels, urbanization, tourism, and low-cost carriers. According to the International Air Transport Association (IATA), India is expected to become the world’s largest domestic aviation market by 2024.
However, the growth of the industry has also brought challenges such as high operating costs, regulatory hurdles, infrastructure constraints, environmental concerns, and safety issues. The industry has also faced shocks such as the global financial crisis in 2008-09, the grounding of Kingfisher Airlines in 2012-13, the collapse of Jet Airways in 2019-20, and the Covid-19 pandemic in 2020-21. These events have impacted the profitability and sustainability of many airlines and have led to consolidation and restructuring in the sector.
India’s domestic passenger traffic growth is estimated to grow between 8 and 13 percent in the current fiscal to reach 150 million, while international passenger traffic for Indian carriers is likely to grow between 10 and 15 percent, according to credit rating agency, ICRA. Yet, losses continue to haunt the industry, which was hit hard by the Covid-19 pandemic. In the ongoing fiscal, losses of India’s airlines are expected between Rs 5,000 crore and Rs 7,000 crore, according to ICRA.
Much of this is also because India’s airlines continue to grapple with structural issues, including the taxation on aviation turbine fuel (ATF), high airport charges, lack of secondary airports, and currency fluctuations. This is also why, India often sees airlines folding up after accumulating colossal debt. Between 2018 and 2023, one airline has shut down operations while another has announced voluntary insolvency.
Brace for Impact of Duopoly
One of the outcomes of the consolidation and restructuring in the Indian aviation industry is the emergence of a duopoly between IndiGo and Air India. These two airlines together account for 89% of the domestic market share and have significant presence on international routes as well. IndiGo is the country’s largest airline with a low-cost business model. Air India is the national carrier with a full-service business model.
According to the Airports Council International, India saw the highest increase?41 per cent?in airfares in the Asia-Pacific region in the first three months of 2023 over pre-Covid times. One reason is the impressive passenger growth. Domestic flyers increased by 43 per cent during January-March 2023, compared with the same period a year ago. Nine crore people flew till June from the beginning of the year. But there is another major reason?all other airline companies have become marginal or are facing existential challenges because of the market clout of Indigo and Air India.
Indigo carried 6.69 crore of about 9 crore domestic flyers in the first six months of 2023?a market share of 63.3 per cent, which is unheard of in any open aviation market. Air India came second with a market share of 9.8 per cent. Together, they accounted for 73.1 per cent of domestic passengers . The next three players? Vistara, Air India Express and SpiceJet?had market shares of 9.8 per cent, 7.1 per cent and 4.4 per cent respectively.
Indigo and Air India also have the largest fleets in the country, with 286 and 173 aircraft respectively as of June 2023. SpiceJet has 82 aircraft, GoAir has 55 and Vistara has 48. The fleet size determines the network coverage and frequency of flights, which are crucial factors for attracting customers.
The duopoly situation poses several risks for the Indian aviation sector. In a duopoly, there is a strong likelihood of relatively higher prices and fewer choices for consumers, and suboptimal innovation and market growth. If allowed to consolidate and strengthen, duopolies can also act as huge impediments for new entrants, which again means lower competition and choices for consumers on a sustained basis.
The Indian aviation sector needs more players to ensure a healthy and competitive environment that benefits all stakeholders. The government should create a level playing field for all airlines by rationalising taxes, reducing costs and easing regulations. The existing players should also diversify their product offerings and cater to different segments of customers, such as full-service carriers (FSCs) and low-cost carriers (LCCs).
The duopoly reduces competition, limits consumer choice, increases market power, and creates entry barriers for new entrants. The duopoly also poses regulatory challenges for ensuring fair play, consumer protection, and public interest.
Recent News and Developments
The Indian aviation industry is experiencing significant growth recently. Passenger traffic has been rebounding strongly since the easing of pandemic restrictions. Several airlines have placed large aircraft orders to support their expansion plans.
The Indian aviation market has witnessed a lot of changes in the first half of 2023, with IndiGo and Akasa Air emerging as the dominant players. While IndiGo has consolidated its position with record-breaking orders and a high market share, Akasa Air has surprised many with its rapid growth and innovation. However, not all airlines have been successful, as some have struggled with financial and operational issues. The future of the market will depend on how the airlines cope with the increasing competition, both domestic and international, and how the government and the industry ensure the safety and benefits of aviation.