India’s aviation policy is built on an expansive vision: a country large enough, young enough, and mobile enough to sustain five major airlines competing across domestic and international routes. Policymakers see air travel not as a luxury but as basic infrastructure, essential to economic integration and regional development. Yet the reality on the ground tells a far more constrained story. Even with just two dominant carriers controlling most of the market, India’s airline industry remains financially fragile, operationally stretched, and structurally exposed to forces that competition alone cannot fix.
The contrast between ambition and viability lies at the heart of India’s aviation dilemma. Passenger demand is rising rapidly, airports are multiplying, and aircraft orders run into the hundreds. At the same time, airlines struggle with thin margins, repeated disruptions, and a long history of failures. The gap between what India wants its aviation sector to become and what its economics allow it to sustain continues to widen.
A Duopoly That Still Cannot Breathe Easily
India’s airline market has effectively consolidated into a two-player system dominated by IndiGo and Air India. Together, they account for well over 90% of domestic market share, leaving little room for smaller competitors to scale meaningfully. In theory, such concentration should improve profitability by reducing fare wars and stabilising capacity. In practice, it has done little to ease financial pressure.
IndiGo’s success rests on ruthless cost discipline, high aircraft utilisation, and a pure low-cost model. Even so, its operations are frequently strained by aircraft groundings, supply-chain disruptions, and airport congestion. Scale has brought resilience, but not immunity. Operational shocks now ripple across the entire system because there are so few alternatives.
Air India’s challenges are deeper and more structural. After decades of state ownership, the airline is undergoing an ambitious turnaround under the Tata Group, supported by a strategic partnership with Singapore Airlines. The task is enormous: merging fleets, retraining staff, fixing service quality, restoring safety culture, and rebuilding global credibility. These changes require time and capital, and during the transition, performance volatility is inevitable.
The result is a paradox. India has a duopoly not because the market is healthy, but because it is unforgiving. Survival itself demands scale, yet scale alone does not guarantee stability.
Why India Wants Five Airlines in the First Place
The government’s desire for five large airlines is rooted in demand projections and policy goals rather than industry balance sheets. India is among the world’s fastest-growing aviation markets by passenger numbers, driven by rising incomes, urbanisation, and improved regional connectivity. Official projections extending to 2040 and beyond suggest passenger volumes could more than triple, making India one of the largest air travel markets globally.
From a policy perspective, concentration carries risks. A duopoly increases systemic vulnerability: disruptions at one airline can paralyse the network. It also weakens consumer choice and gives dominant players disproportionate leverage over airports, suppliers, and regulators. Encouraging more large airlines is seen as a way to improve resilience, competition, and service quality.
There is also a strategic dimension. Aviation is closely linked to national prestige, connectivity, and economic diplomacy. A diversified airline sector supports tourism, trade, and global integration. In this view, the problem is not too many airlines failing in the past, but too few surviving to maturity.
However, this logic assumes that demand growth automatically translates into sustainable airline economics. India’s experience suggests otherwise. Passenger volumes have grown consistently, yet profitability has remained elusive. The issue is not insufficient demand, but a cost and revenue structure that undermines even well-run operators.
Structural Cost Pressures That Refuse to Go Away
The most persistent obstacle facing Indian airlines is a structural mismatch between revenues and costs. While the majority of ticket sales are denominated in Indian rupees, a large share of expenses are tied to the U.S. dollar. Aircraft leases, maintenance contracts, spare parts, insurance, and many technology systems are dollar-linked. Currency depreciation therefore acts as a silent but powerful cost inflator.
Fuel adds another layer of stress. Aviation turbine fuel in India is among the most expensive globally due to high state-level taxes. Fuel routinely accounts for 40% to 50% of operating costs, far above international averages. Unlike other markets, airlines have limited ability to hedge effectively or pass these costs on to passengers.
On the revenue side, pricing power is extremely limited. Indian consumers remain highly price-sensitive, especially on domestic routes. Psychological fare ceilings constrain airlines’ ability to raise ticket prices without triggering demand destruction. Even dominant carriers hesitate to test these limits, fearing market share erosion and political scrutiny.
Airport charges further complicate the picture. As India rapidly expands and modernises its airport infrastructure, user fees and handling charges are rising. While these investments are essential for long-term capacity, they impose immediate financial strain on airlines already operating on thin margins.
These pressures explain why airline failures have been a recurring feature of India’s aviation history. Market exits were not anomalies but symptoms of an unforgiving cost environment.
Expansion Without Profitability Is Not a Strategy
India’s aviation push is closely tied to broader development goals, including regional connectivity and inclusive growth. Schemes aimed at linking smaller cities and remote regions have expanded the network and introduced millions of first-time flyers. Yet these routes often depend on subsidies and remain commercially fragile once support tapers off.
For airlines, growth has become both necessary and dangerous. Fleet expansion is essential to capture demand and maintain competitiveness, but it also increases exposure to debt, leasing obligations, and operational risk. Large aircraft orders signal confidence, yet they lock airlines into long-term commitments in a market where profitability is never assured.
The gap between policy ambition and commercial reality is most visible here. Encouraging five large airlines without addressing underlying economics risks repeating history. More players would likely intensify competition for the same price-sensitive customer base, compressing margins further rather than strengthening the sector.
India’s aviation future will not be determined by the number of airlines it desires, but by whether the ecosystem can support them. That means reforming fuel taxation, stabilising currency exposure, rationalising airport charges, and allowing more flexible pricing. Without these changes, even two airlines will continue to struggle, no matter how strong demand appears on paper.
In that sense, India’s aviation story is less about scale and more about sustainability. Until the economics of flying align with the ambition to make it routine, the industry will remain trapped between growth and fragility—large in volume, but perpetually short of breath.
(Adapted from FlapOne.com)
Categories: Economy & Finance, Strategy
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