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After Air India privatisation, aviation set to be 2nd most concentrated mkt

The top two players will control 80% of industry revenue

Topics
Air India | Vistara Airlines | IndiGo Airlines

Krishna Kant  |  Mumbai 

For comparison, the privatisation of Air India will result in an HHI score for the Indian aviation industry increasing by nearly 730 points from 2,775 to 3,503.
For comparison, the privatisation of Air India will result in an HHI score for the Indian aviation industry increasing by nearly 730 points from 2,775 to 3,503.

Market concentration in the Indian aviation industry will rise as a consequence of privatisation, putting it higher than in telecom.
 
Based on the revenues of FY20, the Tatas, with their three airlines, and will control nearly 80 per cent of those.
 
It will be 81 per cent based on the revenues of FY21.
 
Besides Air India, owns a majority stake in Tata SIA Airlines, which operates Air Vistara, and AirAsia India.
 
In comparison, Reliance Jio and Bharti Airtel together had a 67 per cent revenue share in telecom in FY21.
 
In aviation, the Herfindahl-Hirschman Index (HHI), which measures market share in an industry, will rise to an all-time high of around 3,500 from about 2,800 earlier and 2,300 in FY18, when Jet Airways was in operation. (See the adjoining chart). An industry or a market with an HHI of 2,500 or higher is believed to be highly concentrated, while an industry with an HHI between 1,500 and 2,500 is considered moderately so.
 
An HHI less than 1,500 means the industry is competitive.
 
The telecom industry had an HHI score of around 2,900 in FY21, up from the 1,600 five year ago in FY16.
 
Last month the government announced measures to aid the survival of the third mobile operator, Vodafone Idea, and ease the entry of new players.
 
chart

Both the United States’ Department of Justice (USDoJ) and European Commission uses the HHI in assessing and approving horizontal mergers of firms in an industry.
 
Transactions that increase the HHI by more than 200 points in highly concentrated markets are likely to enhance market power under the Horizontal Merger Guidelines issued by the Department of Justice and the Federal Trade Commission.
 
For comparison, the privatisation of will result in an HHI score for the Indian aviation industry increasing by nearly 730 points from 2,775 to 3,503.
 
The HHI approaches zero when there is a large number of firms of relatively equal size and reaches a maximum of 10,000 points in the case of a pure monopoly. The HHI increases both as the number of firms in the market decreases and as the disparity in size between firms increases.
 
The analysis is based on the revenue market shares of the following airlines — IndiGo, Air India, SpiceJet, Tata SIA Airlines (Vistara), Go Air, AirAsia India.
 
owns 51 per cent in Vistara and 84 per cent in AirAsia India. It will get 100 per cent in .
 
Air India, Vistara, and AirAsia India together clocked net sales of around Rs 40,500 crore in FY20 against the industry's combined net sales of around Rs 95,700 crore, translating into their combined market share of 42.3 per cent.
 
IndiGo was the single-largest airline with net sales of Rs 35,800 crore, followed by at Rs 12,400 crore, and Go Air at Rs 7051 crore.
 
In FY21, Air India, Vistara, and AirAsia India reported combined net sales of Rs 16,130 crore against the industry’s combined revenues of around Rs 38,000 crore.
 
The paint industry is among the most concentrated in India with an HHI score of 4,061 based on the revenue shares of listed paint in FY21. Other industries with relatively high levels of HHI scores include tyres and iron and steel.

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First Published: Tue, October 12 2021. 06:03 IST
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