Signs of a duopoly in India’s aviation sector
Even as the domestic aviation industry faces a resurgence in demand, upheavals in the sector seem to have become a continuing process. The news that Vistara is merging with Air India comes along with reports indicating that SpiceJet is facing financial stress. As for Go Air, the prospects of it returning as an operational airline look bleak right now.
On the plus side, the entry of Akasa Air has brought a fresh wind into the sector. Yet the uncertain fortunes of several players have meant that competition has declined in an industry described as the third in the world, the first being the United States followed by China. It has led to a situation in which the market is set to be dominated by two players in the foreseeable future: Indigo which commands 60 per cent market share and Air India with 28 per cent.
The latter’s privatisation, which took place in 2022, now results in a gradual reorganisation of its subsidiaries. The new owners, the Tata Group, seek to create two entities to serve both budget and premium market segments. Thus, Air India Express and the Tata-owned Air Asia were merged to form a budget airline last year. Now Vistara will become part of Air India and form the flagship full-service carrier.
The development was not unexpected but has sparked worry among consumers, especially business travellers. As loyal customers, they are concerned about high service levels being maintained in the merged carrier. Air Vistara has not turned profitable since its launch in 2015, but it has won an enviable reputation for passenger care. In contrast, Air India lost the original niche status of being a high-quality boutique airline in recent years, and became known for patchy amenities along with an ageing fleet.
This scenario will likely change dramatically for the former public enterprise with the induction of new aircraft with modern in-flight entertainment facilities on domestic and international routes. Singapore Airlines will now also have 25 per cent equity in the concern after the merger. It thus becomes the only foreign airline to have shareholding in a domestic carrier. SIA’s involvement in Air Vistara has been partially credited for the quality of services. It is in this context that the merger with Air India could have some hiccups, given the differences in corporate cultures.
The other development on the civil aviation front is not likely to have such a happy ending. SpiceJet seems to be hurtling towards disaster; yet another casualty among the many seen in this volatile sector. A spate of bad news about the budget airline has been appearing lately. A carrier that had commanded a 15 per cent market share before the Covid-19 pandemic has now found it dipping to 3 per cent. Simultaneously, the Directorate General of Civil Aviation (DGCA) has put it under enhanced surveillance based on spot checks carried out in August.
Recently, the airline announced that 150 crew members have been put on temporary leave without pay for three months. Clearly, a financial crunch has hit the airline with reports also surfacing of payment defaults on provident fund dues. It is also involved in a legal dispute with Pratt and Whitney over their engines which has led to the grounding of many aircraft.
If SpiceJet exits the skies, it will be following in the footsteps of many notable predecessors. The last airline to go bankrupt was Jet Airways which ruled the skies for many years. Others that collapsed quickly include the Vijay Mallya-owned Kingfisher Airlines known for its customer service. One must also recall East West Airlines, Damania Airways, and Modiluft which all seemed to be viable entities in the 1990s before shutting shop.
With the troubles afflicting both SpiceJet and Go Air, it looks as if the aviation industry is heading for a duopoly. This is not an ideal situation in terms of competition though Akasa Air may emerge as a strong player in the longer term. For the time being, it seems Indigo and Air India are set to rule the market. This does not augur well for consumers who will have little choice in terms of carriers.
As it is, consumer complaints in terms of refunds as well as travel conveniences have been mounting in recent years. Fares look eerily similar for both budget and full-service carriers on major routes with the difference only being in terms of on-board facilities, which are sparse for the former. Clearly, if air travellers are to have a choice, more entrepreneurs need to find the resources and enterprise to become viable entities in the airline business.
Sushma Ramachandran is a senior journalist.
(Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH).