Shruti Jha

Answer
The market structure prevailing in the Indian aviation industry is oligopoly. This can be measured by
the concentration ratio of the top four competitors(CR4 index). Concentration ratios are the most
generic measures of market power.
Herfindahl–Hirschman Index( HHI) for 2005:

Competitor Market share Total

JET AIRWAYS 36.1 90%(Oligopoly)
NACIL 30.8 HHI-2500
AIR DECCAN 12.1
AIR SAHARA 11

Herfindahl–Hirschman Index( HHI) for 2014:

Competitor Market share Total

INDIGO 29.5 85.5%(Oligopoly)
SPICE JET 19.8 HHI-2000
NACIL 19.1
JET AIRWAYS 17.1

From the above data we can say that the market power has reduced currently as compared to 2005. On
the other hand we can see there are many new competitors or merger have evolved into the market,
which indirectly brings the threat of new entrant in the market . Only the players who were able to
operate effectively still persisted in the market . There have been many cases of cost and services
competition between them. If one player raises the price the others do not. But if one lowers the prices
then other players will also try to lower the prices.
Therefore, the market power is still low and the demand supply curve will be kinked . This has limited
the power of the airline operators in the market because the do not operation with monopoly or
cooperation.

Answer
There is an intense competition in Indian Aviation market because there are multiple low cost air
carrier organisation in India. Along with such tough competition the new entrants faces many other
barriers too, which are as follows:
1. Lack of skilled and trained manpower : As the number of airlines are increasing the
demand of trained staff is also increasing which causes the shortage of skilled and trained
resources for the new entrants.
2. Slot allocation policies: Since the new entrants do not have access to the pre-allocated slots
so the old players retains the prime slots.
3. High cost of ATF : The cost of fuel is one of the major problem faced by the new entrants.
4. CAR(Civil Aviation Requirement): As per the Civil Aviation requirement (CAR) every
domestic scheduled operator must have a minimum of 5 aircraft and equity of INR 200
million to 500 million. Thus, airline companies that could raise this much of equity could only
fly in India.
5. High Airport charges: The airport charge in India is among the highest fees charged in the
Asian and Gulf region which is also a barrier for the new entrant.

Can the Indian Aviation market called a contestable

market?
A contestable market is a market where the companies can enter and leave freely with low
sunk costs. With the help Porters Five Force Analysis we can determine whether Indian
Aviation market is contestable or not.
 Threat of New Entrant: The threat of new entrant is low due to the multiple
barriers.
 Threat of Substitute: There are multiple substitute for transportation like train, car,
ship, bus etc. Some people tends to choose cheaper mode of transportation while
some people tends to choose lesser time consumption. Hence the threat is moderate.
 Bargaining power of buyer: The airline industry have two type of buyers. First, the
individual flyers who buy plane tickets for a number of reasons that can be personal
or business related. They can buy the tickets through the specific airline or through
the second group of buyers i.e., travel agencies and online portals. These agencies
work with multiple airline firms in order to give customers the best and cheap flight
possible. Hence the bargaining power of buyer is high.
 Bargaining Power of Suppliers: Airline companies cannot easily switch suppliers.
They have to abide by all the conditions of the suppliers which means the threat level
is high.
 Rivalry among the competitor: There is an intense competition in Indian Aviation
market because there are multiple low cost air carrier organisations in India.
From above analysis it can be said that Indian Aviation market is not suitable for new entrant but for
the existing company who are well established.

Answer
Demand Dynamics:
Available Seat Kilometres (ASK) – It is the measure of an airline’s carrying capacity to generate
revenue, taken from multiplying the available seats on any given aircraft by the number of kilometres
flown on a given flight.
Supply Dynamics:
Revenue Passenger Kilometres (RPK) – It is the way of calculating the number of kilometres travelled
by paying customers, by multiplying the number of paying passengers by the distance travelled.

The above graph shows the demand and supply have been increasing constantly throughout the years.
Also, different reports suggest that growth of middle class will continue which will drive the
consumptions. Along with it, urbanization in India, educated young Indian with disposable income
and the need for business travel is on the rise. All this factor suggest that the demand will keep on
rising for low-cost carriers.
Regarding Air Asia we can say that it was not easy for them to establish themselves in the market.
But because of their expertise in LCC operations around the world and the lowest pricing they are
going to adopt Air Asia may change the outlook of air travel in India . Thus it is not just occupying a
presiding position in the existing customer base but also by attracting new customers . Air Asia can
flourish in the Indian market.