The aviation sector in India is unequivocally a monopoly – a characterisation rarely attached to Aviation, which is defined by cutthroat competition and razor-thin margins. As of April 2021, IndiGo has a remarkable 54% market share, with its next competitor – SpiceJet – having a 12.8% market share. Most of us in India – who have flown – can likely claim to have been onboard an IndiGo aircraft.
This market consolidation came about as a result of mismanagement of Air India and Jet Airways, the previous two market leaders in the sector. Both ran inefficiently, with ill-planned and unprofitable routes, an often sub-par product, and a poorly-managed aircraft fleet with various (often unnecessary) types or aging planes. While Air India managed to survive by leeching off Government resources, it has remained dead in spirit, with virtually no expansion. Jet Airways on the other hand, completely capitulated after turmoil back in Abu Dhabi, where Etihad Airways – a key investor in Jet – faced its own crisis. Streaks of losses didn’t help either, as Jet became stuck in debt cycles and eventually failed to service it.
This left the door open for unprecedented expansion by IndiGo, and to a lesser extent SpiceJet and GoAir (now GoFirst), which capitalised on the highly price-elastic Indian consumer, through positioning itself as a low-cost carrier. In this process, it removed most complimentary amenities offered to customers – such as onboard meals or Entertainment Systems – and focused solely on the reduction of costs. This also created an opportunity to generate ancillary revenue through fees for snacks, priority boarding, extra legroom, and extra baggage, allowing it to balance and even reverse the impacts of a lower base ticket fare. By taking advantage of a streamlined fleet through the highly efficient and versatile A320neo Family (the slightly inferior Boeing 737 MAX in the case of SpiceJet), it is able to save on the costs of Aviation Fuel – which constitutes a disproportionate share of costs in India, about 40%. As it had ordered these jets in bulk, IndiGo also saves on the per unit cost of planes through buying economies of scale and larger discounts. All these factors mean that IndiGo has been able to capture a majority of the growth in the Indian aviation sector, leaving little upside for other competitors.
However, this monopoly may soon end. With the acquisition of Air India by the Tata conglomerate, its fortunes are likely to turn around. Even within 2 to 3 months of the acquisition, there has been remarkable progress on the cabin product of the airline, and murmurs about fleet modernisation are strife throughout the industry. The Airbus A350 XWB – currently the most efficient 300+ seater plane in the sky – is touted to be the frontrunner for the replacement of Air India’s aging Boeing 777s. Retrofitted Cabins are already planned by the Tata Group for existing aircraft, which would enable it to reposition itself as a quality full-service carrier, allowing for differentiation from the low-cost carriers. Moreover, the continued expansion of Vistara and the revival of Jet Airways will further bolster the full-service carrier market, differentiating it from the more price-sensitive LCC demand. The entrance of a new player in the form of Akasa Air – another low-cost airline – might place IndiGo in a precarious position, with increased competition on all fronts and sectors. A potential merger of the four Airlines it has - AirAsia India, Vistara, Air India, and Air India Express - into a distinct full-service and low-cost unit would provide the group with the necessary scale to counter IndiGo.
For the consumers, this will likely only translate to greater choice and lower price, as additional competition will likely dwindle down the supernormal profits enjoyed by IndiGo. With the stage set for a robust recovery after the removal of almost all pandemic-related flight restrictions, this next period in Indian aviation remains intriguing.