Failure of Several Airlines In Past Decade Led To Duopoly In Aviation Market: Samant Kumar Jha

Chennai: The government's proposal to allow airport operators to own airlines could lead to conflicts of interest and potentially create a new duopoly instead of improving competition. The government must address the structural challenges faced by the aviation sector, including high operating costs, heavy debt, aircraft shortages, expensive aviation turbine fuel and high taxes, says Samant Kumar Jha, Associate Director, India Ratings and Research.

The government has proposed allowing the operators of Mumbai and Delhi airports to own airlines. Could this lead to a conflict of interest? What safeguards are needed to ensure equal access for competing airlines?

There is definitely a possibility of a conflict of interest because airports are effectively monopoly infrastructure providers. Airlines depend on them for slot allocations, boarding gates, parking facilities, ground handling, check-in counters, cargo handling, maintenance facilities and expansion decisions.

If an airport operator also owns an airline, it becomes both a referee and a player in the same market. This raises concerns about whether competing airlines will receive fair treatment.

The potential risks include preferential slot allocation, preferential gate assignments, discriminatory airport charges and access to commercially sensitive data. These could put rival airlines at a disadvantage.

The most important safeguard is structural separation. Even if the government permits airport operators to own airlines, independent boards must manage the airport and airline businesses, with separate reporting structures. An independent agency should allocate slots to all airlines rather than leaving the responsibility entirely to airport operators.

There must also be regulatory oversight of slot allocations and airline operations, along with clear equal-access rules. Strong governance and structural safeguards are essential to ensure a level playing field.

The government believes that allowing more players into the aviation market will break the duopoly. Is this the right approach?

Increasing the number of players can improve competition, with consumers ultimately benefiting. However, allowing major airport operators such as Adani and GMR to own airlines may not necessarily increase competition.

If the independent oversight mechanisms and structural safeguards I mentioned are not established, the move could have the opposite effect. Instead of breaking the duopoly, it could create a new one.

The fundamental challenges facing the aviation sector go beyond the number of airlines. IndiGo and Air India together account for around 90% of the domestic market. However, simply introducing two more airlines will not resolve the underlying problems that have made the business difficult to sustain.

Aircraft shortages, high capital requirements, scarcity of airport slots, thin profit margins, expensive aviation turbine fuel (ATF) and high taxes are among the key challenges. These must be addressed if India wants a competitive and sustainable aviation industry.

India once had several major airlines, including Kingfisher, Jet Airways and Go First. How did the market consolidate into a two-player industry?

Over the past decade, several airlines have exited the market, each facing different challenges. Their failures have contributed to the consolidation we see today.

Kingfisher Airlines began operations in 2005 and acquired Air Deccan in 2007. It pursued ambitious expansion, but aviation is a capital-intensive business with very thin profit margins. The acquisition and expansion increased its debt burden, and the airline eventually shut down in 2012.

Jet Airways operated from 1993 to 2019. One of its challenges was its focus on high-cost premium services when Indian passengers were looking for affordable fares. The airline accumulated substantial debt and eventually grounded its fleet.

Go First faced a different problem. It struggled with supply-chain disruptions, particularly the timely availability of aircraft engines. India remains dependent on overseas suppliers for aircraft and several maintenance requirements, making airlines vulnerable to external disruptions.

Air India also faced high operating costs and accumulated losses of around ₹70,000 crore or more under government ownership before being sold to the Tata Group.

These examples demonstrate that airline failures cannot be attributed to a single factor. High leverage, operational inefficiencies, supply-chain problems and the inability to manage costs have all played a role. Each exit reduced competition and contributed to the consolidation of the market.

Why is the airline business so difficult in India despite rapidly growing passenger traffic? Where do airlines lose money?

One of the biggest challenges is the high cost of aviation turbine fuel. ATF accounts for approximately 35–45% of an airline's operating costs. Taxes on aviation fuel in India are also high compared with many other countries.

Another major issue is currency exposure. Aircraft procurement and maintenance involve significant payments to foreign entities, and many of these expenses are dollar-denominated. Indian airlines earn most of their revenue in rupees but incur substantial costs in dollars. When the rupee depreciates, their expenses increase.

Airport charges add to the burden because operators need to recover their infrastructure and operating costs. At the same time, airlines face intense competition and passengers are highly price-sensitive, limiting their ability to pass on higher costs through fares.

Revenue can also be volatile. Geopolitical developments, including the West Asia crisis, can push up fuel costs and disrupt routes. Airlines therefore face a combination of high operating expenses, currency risks and uncertain revenues.

Passenger traffic is growing by 8–10% annually, and airlines use dynamic pricing. Why has this not translated into adequate returns?

Passenger growth is certainly supporting the industry. Following the sharp decline during the Covid-19 pandemic, traffic began recovering around FY22 and has since grown strongly. Connectivity between smaller cities and larger urban centres has also supported demand.

Dynamic pricing gives airlines the flexibility to charge different fares depending on demand. However, its effectiveness depends on competition and passengers' willingness to pay.

An airline may want to increase fares, but if passengers move to a competitor offering cheaper tickets, it could struggle to fill its aircraft. A lower passenger load factor can offset the benefit of higher ticket prices.

Airlines must strike a balance between increasing fares and maintaining seat occupancy. Dynamic pricing can support revenues, but it cannot by itself overcome the industry's structural cost pressures.

How serious is the debt problem among India's major airlines?

Air India's debt stood at approximately ₹61,000–62,000 crore at the end of FY26, while its consolidated loss was around ₹22,000 crore.

IndiGo, meanwhile, had debt of approximately ₹79,500–80,000 crore and reported a profit of around ₹7,500 crore in FY26.

Together, the two airlines had approximately ₹1.41 lakh crore in debt. These figures highlight the scale of the financial commitments involved in operating airlines, even in a market where passenger demand is growing.

What lessons should India learn from past airline failures, and what can the government do to make the industry sustainable?

There are lessons for both the government and private operators.

First, growth cannot substitute for profitability. Airlines must avoid overambitious expansion without adequate attention to cost management and sustainable returns.

Second, excessive debt is dangerous. Debt-servicing obligations continue even when passenger demand weakens, fuel prices rise or global disruptions affect operations. Airlines must maintain prudent leverage so that fluctuations in revenue do not threaten their survival.

Third, operational resilience is essential. India's dependence on overseas aircraft suppliers and maintenance providers exposes airlines to external risks. The government should support the development of maintenance, repair and overhaul (MRO) facilities, including by making suitable space available at major airports.

Governance is equally important. If airport operators are allowed to own airlines, the two businesses must be separated through robust structures and effective safeguards. A clear firewall between them is necessary to mitigate conflicts of interest.

Finally, the government needs to review high taxes and the cost burden imposed on airlines. Airport infrastructure requires long-term planning, with investments typically designed around a 15–25-year horizon. Policy support must reflect this long-term perspective rather than focus only on immediate expansion.

India needs a competitive aviation sector, but adding more airlines alone will not achieve that objective. Sustainable competition requires lower cost pressures, prudent debt management, operational resilience and strong governance. Only then can airlines survive, become profitable and deliver lasting benefits to passengers.