By Nantoo Banerjee
The civil aviation ministry’s much publicized issue of ‘no objection certificates’ to proposed three airlines – Shankh Air, AIhind Air and FlyExpress – apparently to break the near monopoly of IndiGo in the fast-expanding domestic aviation market shows, if anything, a lack of market perspective and common sense. If and when these new airlines start operation, they will have practically no impact on the operations of IndiGo and the Air India group, together controlling over 92 percent of the market, unless the government drastically cuts IndiGo’s highly dominant market position. IndiGo has been by far the biggest beneficiary of the robust post-2020 market expansion. India’s civil aviation market is now the world’s third largest after the US and China. The market is driven by rising middle-class demand, generally affordable fares, and infrastructure expansion. Currently, it is the fastest growing domestic market, carrying some 520 million passengers annually.
IndiGo has been continuously expanding its fleet and service to remain the top beneficiary of the massive market expansion. It dominates the country’s domestic aviation business with a market share typically hovering around 66 percent. The combined market share of Air India and its subsidiary, Air India Express, is close to 26 percent. The rest are shared by SpiceJet, Akasa Air, Fly91, Alliance Air, Star Air and FlyBig. Under the circumstances, the entry of new airlines will at best further reduce the market share of the existing small airlines potentially turning them sick. The government must cut IndiGo’s market share to 40 percent to allow more business space to smaller airlines. It must act fast before it is too late to reorganise the market as well as the route share.
IndiGo operates a massive fleet of around 425-434 aircraft, primarily Airbus A320 family jets and ATR 72s, solidifying its position as India’s dominant low-cost carrier with the world’s youngest fleet in its category and a huge order backlog for future growth, despite facing recent operational challenges. Under the circumstances, the entry of new airlines will at best further reduce the market share of the small airlines potentially turning them sick. The government must cut IndiGo’s market share to allow business space to smaller airlines.
To ensure healthy market competition, India’s Competition Commission (CCI) and government must break IndiGo’s near-monopoly status in market, taking a lesson from the last month’s widespread disruptions by IndiGo challenging the DGCA’s Flight Duty Time Limitation (FDTL) Order and, in the process, cancelling thousands of flights. This will allow existing small airlines to survive and expand. Any addition of small airlines at this stage may only harm the existing operators and disrupt air travel plans of local passengers. Maybe, it is time that the government should ask itself why some 30 domestic airlines were forced to shut down their operations in the last 25 years resulting in massive losses to the stakeholders, including government banks and financial institutions.
The list of grounded Airlines since 2000 is alarmingly large. It includes Air Carnival, Air Costa, Air Mantra, Air Odisha, Air Pegasus, Air Sahara, AIX Connect, Chhattisgarh Air Link, Damania Airways, Dove Airlines, Gujarat Airways, Go Air, Go First, Indus Air, Jagson Airlines, Jet Airways, Jet Connect, JetLite, Kairali Airlines, Kingfisher Airlines, Kingfisher Red, MDLR Airlines, Paramount Airways, Sahara Airlines, Simplifly Deccan, Supreme Air, TruJet and Zoom Air. The union civil aviation ministry probably owes an explanation to the public for such a massive closure of operations by the promoters of these airlines, robbing investors, creditors, suppliers and employees. It is quite depressing to note that the department has been among the worst performing ones under the successive governments.
It is only after last month’s episode, India’s competition commission (CCI) has launched an investigation into IndiGo’s alleged abuse of its market domination. Interestingly, under India’s Competition Act, 2002, holding a dominant market position is not inherently illegal. The violation occurs if that dominance is abused. The CCI probe is examining whether IndiGo engaged in exploitative or exclusionary conduct, such as imposing unfair conditions or manipulating prices, particularly through steep fare increases after cancellations when passengers had limited alternatives. The CCI has sought information from IndiGo as part of a preliminary inquiry, and if credible allegations are found, a detailed investigation by the Director General’s office may follow.
The country’s competition regulator, a statutory body under the Ministry of Corporate Affairs, is supposed to ensure fair competition, prevent anti-competitive practices (like cartels or abuse of dominance), and protect consumer interests by promoting a competitive environment in the Indian economy. The question is: what prevented the CCI from starting a similar investigation into IndiGo’s alleged anti-competitive practices before the airlines showed the courage to overlook the DGCA’s flight duty (FDTL) order and cancelled thousands of flights.
It may be noted that under a somewhat similar situation, Italy’s competition authority (AGCM) had hit Ryanair, last month, with a fine of more than Euro 255 million ($300 million) for abusing its dominant position. The regulator said the low-cost airline blocked or restricted travel agencies from offering flights combined with other airlines or services. It was alleged that Europe’s biggest budget airline “totally or intermittently blocked booking attempts by travel agencies on its website, for example, by blocking payment methods and mass-deleting accounts.” The AGCM alleged that Ryanair used ‘an abusive strategy.’ However, Ryanair has challenged the AGCM’s fine, calling it “legally flawed” and “unsound.”
While the CCI investigation into IndiGo’s unfair market dominance is welcome, the government would do well to ensure that the existing small airlines don’t financially collapse under unfair market pressure. Going by the industry records, few domestic airlines succeeded in their business due to a combination of high operating costs, fierce price competition, massive debts and financial mismanagement. These systemic issues make profitability elusive for many carriers, even amidst robust passenger demand. Instead of issuing NOCs to new airlines, the government should significantly cut the cost of aviation turbine fuel (ATF), which is subject to some of the highest state taxes in the world, consuming a large portion of an airline’s revenue. Other major expenses, such as aircraft leasing, maintenance, and spare parts, are often paid in US dollars, making the domestic airlines vulnerable to the continuous depreciation of the Indian Rupee.
The government should also look into the shortage of skilled personnel (like pilots and maintenance crew) leading to operational strains. The combination of a highly competitive, low-margin environment and significant operational and financial vulnerabilities has created a challenging ecosystem where only the most operationally efficient carriers manage to remain profitable. And, the market share and profitable route share matter a lot. The government and market regulator should work together to ensure a healthy market situation for all the existing operators to grow before making the market further overcrowded with inexperienced new licensees. (IPA Service)
