Question: 1

What is the market structure prevalent in the Indian

aviation sector? The number of airline players in the
Indian aviation declined by nearly half between 2005 &
2014. Can this statement be taken to safely conclude that
the

degree

of

market

power

within

Indian

aviation

increased/doubled during the period?

The market structure prevalent in the Indian aviation industry is
oligopoly. This can be measured by the CR4 index i.e. the
concentration ratio of the top four players. Concentration ratios
are the most common measures of market power. The four-firm
concentration ratio measures the percentage of total industry
output attributable to the top four companies. Another measure
of concentration is the Herfindahl-Hirschman Index.

2005:
PLAYERS
JET AIRWAYS
NACIL
AIR DECCAN
AIR SAHARA
TOTAL

2006:
PLAYERS
INDIGO
SPICE JET
NACIL
JET AIRWAYS
TOTAL

MARKET SHARE
36.1
30.8
12.1
11
90%(Oligopoly)
HHI - 2500

MARKET SHARE
29.5
19.8
19.1
17.1
85.5%(Oligopoly)
HHI - 2000

From the above table it can be inferred that the market power has
reduced currently when compared to 2005. But this can be
accounted to a number of new players evolving, mergers and
acquisitions etc.. In this type of market the biggest threat is new
entrants. Only the players who were able to operate effectively
still remain. There have been cases of price wars between them.
Thus the market power is still low and the demand supply curve
will be kinked. If one player raises the price, the others wont.
Whereas if one lowers the prices the other players will try to offer
even lower prices. This has limited the power of the airline
operators in the market since they do not operate by collusion or
cartels.

Question: 2
What are the barriers to entry faced by new entrants, such
as AirAsia India, in the Indian aviation market?

With so many low cost carriers in operation, there is an intense

competition

in

the

Indian

aviation

industry.

Stung

by

this

competition, the Indian aviation industry has introduced strict entry

barriers, which will limit the competition. Apart from this, there are
several other challenges in the Indian aviation sector which a new
entrant has to overcome to make its airline functional in the Indian
skies. The barriers and challenges faced by these new entrants can
be listed as follows:
CAR (Civil Aviation Requirements) essentials:
To operate only as a domestic carrier, an operator has to
have a minimum fleet requirement of 5 aircrafts.
A minimum equity of INR 200 mn to INR 500 mn

 To be able to operate of international routes the 5/20 rule

was applicable, according to which a carrier needs to possess
mandatory more than 5 years of operational experience and a
fleet size of 20 aircrafts
Lack of trained and skilled manpower: With the increase
in the number of airlines the requirements for trained staff is
also increasing and with more entrants there will be a
shortage of skilled and trained manpower
Slot allocation policies: New entrants have no access to preallocated slots whereas the old players could retain prime slots
based on their usage of those routes and historic precedence
New entrants had access to only 50% of the routes so they
had a very limited pool of free slots
It increases the operational expenses in the form of extra fuel
usage when there is a delay in landing due to unavailability of
landing space.
The low cost carriers have to bear the high airport charges
due to unavailability of secondary airports in India