Mint explainer: Is Indian aviation headed for a monopoly?

1. How will the Indigo deal change Indian aviation?

The total number of planes ordered by India’s largest airline IndiGo has risen to 1,330 after the latest deal. This is almost double the current size of the Indian aviation market, which comprises around 700 aircraft. The huge order reinforces the growth story of the Indian aviation market, whose demand has skyrocketed since the pandemic subsided. With more capacity, Indian airlines are expected to offer better connectivity on both domestic and international sectors. In the global market, the latest order is expected to lead to more direct exposure across Europe and South Asia.

2. Is Indian skies heading towards monopoly?

According to the latest data from the Directorate General of Civil Aviation, IndiGo has a market share of 61.4%. The combined share of all airlines under the Air India umbrella – Air India, Vistara, AirAsia India and Air India Express – is 26.3%. This gives the two firms a combined market share of around 90%. They are also aggressively increasing their capacity – IngiGo’s current fleet strength is 312 and Air India’s is 238. Industry experts say all these numbers point towards a monopoly. Other airlines lack either a strong promoter group or the means to increase the size of their fleet.

3. How will air fares be affected?

Air fares in India are not regulated by the government and depend entirely on supply and demand. More recently, supply-chain issues have hindered deliveries of engines and aircraft. In addition, the temporary suspension of operations by GoFirst has also reduced the number of flights available from 150 to 200 a day. This has resulted in higher air fares. But as airlines increase their capacity, fares are expected to stabilize in the long run.

4. Is this the end of big orders for Indian Airlines?

No. Aviation consultancy firm CAPA India estimated in February that Indian airlines could place orders for 1,500 to 1,700 aircraft over the next two years. Air India and IndiGo have placed orders for 970 aircraft since February. India’s youngest airline Akasa Air is expected to bag new orders this year. Air India also has an option to buy another 370 aircraft, which it can convert into firm orders. In addition, as older aircraft are retired, they need to be replaced. Thus, industry veterans predict that airlines backed by strong promoters will continue to order more aircraft in view of the huge potential demand in India.

5. Why are airlines bullish on India?

India is a low penetration market. It is one of the fastest growing economies in the world and has an ambitious middle class. The country is also building several new airports, which will increase the demand for the fuel. The increase in passenger numbers since the pandemic has been an encouraging sign for airline companies. They carried around 13.2 million passengers in May, surpassing the previous record of 13.02 million in December 2019. In fact, January and February – considered low travel months – saw more average daily passengers than the peak travel months of October and November.

Updated: June 21, 2023, 01:08 PM IST