The problem with Indian skies: New airlines won't fix competition easily

The aviation ministry has cleared three new regional airlines in a bid to spur competition. This won't be easy

He has been advocating more competition in the skies especially after the meltdown of IndiGo Airlines last month — which led to mass cancellations of flights across the country and chaos at airports.

 

So in the last week of December, Aviation Minister Ram Mohan Naidu granted no objection certificates (NOC) to three regional airlines to take to the skies and boost regional connectivity. His aim is to have at least five airlines with more than 100 planes each to spur competition.

 

Many say this is an unrealistic ambition — only two airlines currently meet that criteria, IndiGo and Air India group. The others — SpiceJet, Akasa, IndiaOne Air, Star Air, and Fly91 — even collectively do not hit that number.

 

Noida-based Shankh Airlines promises to be first off the block among the three new NOC holders. It plans to start operations in March with three Airbus A320 planes leased from Bulgaria, and add another two by July or August. It will connect Lucknow with Delhi and Mumbai and Bengaluru, as well as Varanasi, Ayodhya, and Gorakhpur.

 

Giving it company in the south is Kerala-based alHind Air. It had planned to launch in the middle of last year, but its NOC got delayed. It is now scouting around for at least two ATR 72-600 aircraft to start its operations, with Kochi as its base.

 

Finally, there is the Hyderabad-based FlyExpress, which wants to connect tier-2 and - 3 cities.

 

But will the move allow more players and spur real competition in the skies? After all, IndiGo lords over with a 65 per cent market share and, along with the Tatas, runs a duopoly, which has now crossed 91 per cent. That leaves very little room for any other airline to manoeuvre or survive.

 

In 2023 the Centre for Aviation (known then as CAPA) had projected that the top two players would moderate to a 75 per cent market share with room for a few more players to enter the ring. But the concentration of the top two is far higher than what they had anticipated. Their research said an airline can survive if it has a minimum 10 per cent share, and a niche player at 5 per cent.

 

So the question that arises is: Can three new players starting from scratch and airlines like SpiceJet (2.7 per cent of the domestic share) and Akasa (just over 5 per cent) run a viable airlines business in such a market?  

 

Clearly, the numbers don’t stack up if eight players are going to be jostling for less than 10 per cent of the market.

 

Aviation consultant Ameya Joshi said: “The market is growing. So it can take multiple players, but to get a sizable market share, airlines like SpiceJet and Akasa need a lot of cash to sustain inductions along with market penetration costs. They will need to pull the market from incumbents, too.” He added that in the past, even bigger players like Jet Airways and Kingfisher had weak balance sheets in spite of a high market share, so they were not strong airlines.      

 

Aviation experts said that even in an optimistic scenario, the three new NOC holders might not want to deploy more than 5-10 new planes each. Other experts believe that none of them may be able to take off this year. If they did, their best bet would be to enter virgin routes or to fly in those sectors where IndiGo is the sole operator, with no competition.

 

So in 2026 don’t expect any change in the aviation competitive landscape.

 

While projections are for a net induction of 50-55 new planes, IndiGo will account for the bulk of them. And Air India has already said its fleet size in 2026 will remain at the same level as that of last year even after inducting around 26 aircraft — as it will be retiring and returning many planes.

 

So IndiGo’s domination of fleet, seats and market looks set to continue.

 

Having said that, the competition between the big boys is set to intensify in 2027-28, when the Air India group expects the bulk of its deliveries of 570 planes to come through.  According to estimates by CIRIUM, a global aviation analytics company, as many as 177-180 new planes will be inducted, pushing its fleet size by the end of 2028 to over 540 planes. That will bring its fleet size pretty close to that of IndiGo, which is expected to end 2028 with  585-590 planes.

 

The Air India group has already pushed the pedal in certain key routes. For instance, the Delhi - Mumbai route — the world’s eighth busiest — in December saw Air India and Air India Express collectively grab 48.8 per cent of seat capacity pushing IndiGo to the second spot at 38.8 per cent, according to CIRIUM data.

 

And on some other important routes, there is already a three-cornered contest with Akasa emerging as a third player. For instance, on the Delhi-Benguluru route, the Air India group (with 46 per cent of seat capacity) is ahead of IndiGo (40 per cent), but Bengaluru-based Akasa has emerged as the new player, having grabbed over 11 per cent share.

 

Whether Akasa can up the ante will depend on whether it follows through on current plans to induct 13 more planes this year, increasing its fleet strength to around 44 by the end of the year.

 

Akasa’s presence has led to a contest on the Mumbai-Bengaluru route with IndiGo (with half the market) taking on Air India (31 per cent ) and Akasa emerging with a 12 per cent market share. In the Delhi-Kolkata route again, Akasa has emerged as the third-largest player (8 per cent) in a market where IndiGo (with half the market) is battling the Air India group.

 

However, to stay the course of grabbing the market share does not only mean making profits.That is where IndiGo scores over its rivals — by honing a low-cost model with consistent growth and profit year-on-year (except during the pandemic).  It also moved to fill any gaps in capacity due to financially strapped airlines closing operations.

 

The number of passengers carried by IndiGo grew at a CAGR of 18 per cent in the 10 years to FY25. In comparison, key competitor SpiceJet saw its numbers fall by 5.3 per cent in the same period. Air India managed to grow its passengers carried, but only by 6.7 per cent.

 

In terms of fleet expansion, SpiceJet had a peak of 114 planes in pre-pandemic FY20, but it drastically cut its size by more than half to 53 in FY25, while IndiGo’s fleet grew from 262 in FY20 to 437 in FY25.

 

IndiGo ran a low-cost, mean machine, which none of its competitors have been able to replicate. Its aircraft to pilot ratio in FY25 was one of the lowest at 12.5 compared with Air India’s 17.3 and Akasa’s 29.8. Its ‘aircraft utilisation in the air’ with 437 planes in FY25 was 3,541 hours per aircraft, which is nearly double that of SpiceJet and 27 per cent more than Air India Express’.

 

To be sure, a low pilot-to-aircraft ratio can also hobble operations during crunch periods or if the regulator insists on enforcing rest periods, as IndiGo experienced last year.

 

It also grabbed the opportunity left by collapsing or weak and financially strapped competitors. When Jet Airways closed operations in 2019, IndiGo was able to fill the gap by pushing its domestic market share from 41 per cent in 2018 to a landmark 51 per cent by 2021. After the pandemic years, GoAir faced severe engine shortages and closed operations in 2023, while SpiceJet faced financial challenges. Again, IndiGo grabbed this opportunity, pushing its market share to over 60 per cent for the first time.

 

Consistently making profits remain important, however — without it no airlines, however big, can sustain itself. This has been achieved only by IndiGo, which made profits in six out of the 10 years (it made losses during the pandemic) since FY16. Its profits came to ₹7,253 crore in FY25. By contrast, all other key competing airlines have faced financial challenges.

 

The new kid on the block, Akasa, saw its losses go up to ₹1,986 crore in FY25, and so it decided to go slow. From FY16 to FY25, SpiceJet made profits only in three years — and never after FY18. And Air India has been in the red throughout the decade ending FY25, even after the Tatas took it over — though it has substantially reduced its losses in the last two years.

 

The lessons are clear – running an airline is tough business. The question is whether the new or even some of the existing players have the acumen to run an efficient and profitable airline with an equal ability to disrupt the duopoly in the skies. 

State of play 

• IndiGo and Air India group control 91 per cent of the domestic market with over 86 per cent of the 866 aircraft in the skies in FY25     
• With three airlines being given NOC, there are eight players now jostling for the rest of the tiny market
• Centre for Aviation says that for an airline to break even, it needs at least a 10 per cent share of the market and niche players around 5 per cent, leading to questions over viability  

 

What can change? 

• With projected large-scale induction of new aircraft by Air India group in 2027 and 2028, the gap with IndiGo in capacity is expected to narrow
• Air India group has overtaken IndiGo on the lucrative Mumbai-Delhi and Delhi-Bengaluru routes. More of that is expected to happen
• There is already a three-cornered contest on some routes with Akasa emerging as a serious third player. It is expected to add 13 new planes this year. SpiceJet is also planning to up the ante   
• Regional airlines given NOC can challenge IndiGo on one-fifth of the routes it flies, where it is the sole operator