By Gp Capt AK Sachdev (r)
The international trend of air fares going up steadily since the Covid pandemic petered out is alarming. Simply stated, the contributary factors are increased (and increasing) demand for air travel, and disrupted supply chains for airplanes and their components for the two major airframe manufacturers, Airbus and Boeing.
While the dynamics of demand push up air fares, the lack of capacity with airlines provides another impetus for the upward trend for fares. The total cost of operations has increased and the pressures to use costly sustainable fuels will push air fares even further up. An India specific factor for high air fares in the future is an impending duopoly in its skies.
During the Paris Air Show early this year, Indigo, the India’s leading airline, ordered 500 Airbus aircraft for its fleet. Air India followed with its own order the next day for 470 aircraft, from Airbus and Boeing. These 970 aircraft, expected to be inducted between mid-2025 and 2035, are an indicator of the liveries that will dominate Indian tarmacs over the next two decades.
The Tata group currently owns four airlines in India: it is the sole owner of Air India, AirAsia India and Air India Express and holds a 51 % stake in Vistara, a merger for which has been cleared by the Competition Commission of India (CCI) in September. The Vistara merger will bring in an investment of INR 2059 crores from Singapore Airlines which will hold a 25.1 % share in Air India thereafter. Tata Group’s eventual plan is to merge Vistara with Air India and Air Asia India with Air India Express (already in final stages) to eventually have one full-service carrier Air India and one Low Cost Carrier Air India Express.
According to the Director General Civil Aviation’s (DGCA’s) official site, during the month of October 2023, Indigo had a 62.6% share of scheduled domestic market, raising concerns about a monopoly. Air Asia (6.6%), Air India (10.5%) and Vistara (9.7%) totalled up to 26.8% share. Thus nearly 90% of the total share is with Indigo and Tata owned airlines.
The remaining seven airlines (which include Alliance Air whose parent company, Air India Limited, was sold to Tata Sons in 2021 but Alliance Air was not a part of the deal) have a combined share of just 10.6%. Of these GoFirst is unlikely to recover from its Pratt & Whitney driven malady while SpiceJet appears to be heading for trouble too. The only airline of these that has an ascendant trend is Akasa airline which could emerge as a challenger to the Indigo-Air India duopoly.
The history of Indian airlines since the first wave of liberalisation (early 1990s) is one of a huge proportion of them falling by the wayside. The combined grandfather rights of Indigo and Air India over slots, and their much larger capacities than any other airline to absorb financial setbacks, are all set to nudge other airlines out of the market.
Consequently, one may question the implication for the passenger. There is a high probability that, once all other airlines have bowed out, the duopolistic dynamic will favour higher ticket prices. Already fares display extraordinary agility on occasion and indeed, a department-related Parliamentary Standing Committee on Transport, Tourism and Culture has put forward recommendations to the Minister of Civil Aviation (MoCA) that it monitor and regulate flight booking portals and their unethical profit-based practices. There is not much that passengers will be able to do except pay up as the alternative, especially over any distance more than 300 km, is rail travel which cannot match air travel. It takes longer to travel by rail and is not as comfortable. Moreover, the AC first class fares are generally higher than air fares, with dynamic pricing adding unreasonable premia closer to the date of travel or during festive seasons.
There is always the hope that the government will intervene and rein in upward air fare trends but opinion about that is divided. DGCA has no clear mandate regarding air fares but has intervened in the past. It had laid down minimum and maximum fares for various sectors in mid 2020 due to Covid which the Delhi High Court refused to interfere with saying it was “a stop gap arrangement.
However, the central government has submitted a statement before the Kerala High Court on10 November 2023 that air fares are not regulated by the government. Its affidavit said that airlines are free to charge air fares as per their operational viability, that dynamic pricing was a global practice, and that the government did not interfere in commercial aspects of airlines. That is a cheering iteration as far as the airline industry is concerned one of whose arguments against DGCA trying to control air fares has been that if DGCA wants to curtail profits when market forces permit them, then it should compensate airlines’ losses too when the market turns gloomy (as during it did during Covid).
An airline duopoly is impending, and the consoling thought is that a duopoly is better than a monopoly. The air passenger can hope that, in the best-case scenario, the duopoly may bring a healthy competition and actually stabilise prices. After all, Visa and Mastercard have co-existed in a duopoly for close to six decades! Of course, a spinoff of the duopolistic situation would be that the entry barriers for new entrants will be prohibitive and the duopoly will be self-perpetuating.
A duopoly may not be good for Indian civil aviation as healthy rivalry between several players is needed to keep air fare pricing balanced by cost and competition (as had accrued during the second wave of liberalisation commencing 2005 when Air Deccan unleashed its Re 1 ticket). Moreover, the duopoly comes at a time when Indian aviation is all set to take off. One hopes that the two entities will behave responsibly and support the health of the nation’s civil aviation.
