Two airlines dominate India's growing market

Last month at the Paris Airshow, India’s budget airline IndiGo placed an order of 500 A320neo aircraft from Airbus, making the multibillion-dollar deal the largest by a single carrier in civil aviation history. Earlier in the year in February, the newly privatized Air India had placed an order of 470 narrow and widebody jets from both Boeing and Airbus.

The two airlines have a combined domestic market share of 81.3% in 2023 with IndiGo ferrying 56.2% of the country’s passengers and Air India flying 25.1%. While the former’s share in the country’s domestic market has steadily increased over the last 15 years, the latter’s share received a boost after the Tata group took control of it early last year.

State-run Air India’s domestic market share had consistently reduced over the years. It fell to 9.6% in 2021 from 17.3% in 2014. It was purchased in January 2022 by the Tata conglomerate, which was already running Vistara and AirAsia India at the time. Their domestic market shares in 2022 were 9.2% and 6.2%, respectively. In November last year, Air India announced a merger with both Vistara and AirAsia India. Taking Vistara and AirAsia India’s market shares into account, the Air India group airlines’ market share stands at 25% in 2023. Currently, the merger application is pending with the Competition Commission of India.

One of the fastest growing markets

As many as 685 million people are expected to fly in India in 2042 compared to the 165 million in 2019, according to Airbus’s 20-year forecast released in June 2023. This makes India the third largest civil aviation market after China and the United States and one of the fastest growing ones. A Barclays report released in June shows that Indian carriers account for nearly 7% of the industry backlog of orders, the second largest in the world after the U.S.

In such a rapidly growing market, the presence of two large and established players could lead to price increases in the future. “​​India does look to move towards just two main players in the aviation space in future. While there remains a fear of a duopoly, the Air India group will take a while to consolidate,” Amey Joshi, an independent aviation analyst, told Reuters.

Competition on a sticky wicket

As IndiGo and Air India group airlines consolidated their presence in the market, their competition either folded or found themselves in legal trouble and lost consumer confidence.

Since 2010, two full service carriers have ceased operations in India. Kingfisher Airlines shut in 2012 after it could not pay its outstanding dues to aircraft lessors, oil companies, airports and salaries to its staff. Jet Airways met with the same fate in 2019 due to similar reasons.

The latest casualty is low-cost carrier Go First. It filed for voluntary insolvency in May and its bankruptcy filing showed that it owes $798 million to its financial creditors although the company said that it had not defaulted on any of its dues. The airline had a market share of 6.4% in April, the month before it stopped flying, which fell to 0.4% in May. After being grounded for nearly three months, the Directorate General of Civil Aviation said on July 21 that the airline could resume operations provided it met certain conditions. As of publication of this piece, it had canceled all its flights until July 25.

The last long-standing competitor SpiceJet is not without its problems. Its market share decreased to 4.4% in June 2023 from 13.4% in January 2019. Its financials have not been too rosy either as it has posted a loss in eight of its last 10 quarters, and its share price has fallen by 18% in 2023. Currently, its share trading has been suspended. It also faces insolvency pleas from lessors.

Akasa - the new airline on the block

Budget carrier Akasa Air started commercial operations in August last year. In a short span of 10 months, its market share has grown to 4.8% from 0.2%. Presently it is scheduled to operate to and from 20 destinations in India until October. It is also eyeing expanding its network and fleet and said at the Paris Airshow that it is on course to announce another significant three-digit aircraft order by the end of 2023. But only time will tell if its expansion is smooth. “Akasa is too nascent at this stage and how it shapes up is for time to answer,” said aviation analyst Joshi.

State of other big markets

The United States and Brazil are two other major domestic aviation markets in which private carriers operate. And the market is evenly split among three or more airlines in both countries. In the U.S., four major airlines - American Airlines, Delta Airlines, Southwest Airlines and United Airlines - occupied around 67% of the domestic market between April 2022 to March 2023 while other smaller and regional airlines accounted for the rest. In Brazil, the three major airlines were LATAM Brasil, Gol Intelligent Airlines S.A. and Azul, which had market shares of 37%, 33% and 29%, respectively.