The complex schedules that tied together 2,700 daily arrivals and departures at IndiGo, India’s biggest airline, started to fray in November, when a rule mandating more rest for flight crews went into effect. Last week they unraveled completely: IndiGo canceled more than 1,000 flights in a single day and more than 1 million reservations in all.
The government ordered an investigation into the airline’s practices. How could one company’s breakdown bring India’s whole aviation sector — the third-largest in the world — to a screeching halt?
The answer starts with how little competition there is. IndiGo’s runaway success has allowed it to capture more than 64% of India’s domestic market since it was founded in 2007. Air India controls another 25%.
The lack of competition in the aviation industry, with so much ownership in the hands of so few, is increasingly typical in India. Critical sectors of the economy, from telecommunications and e-commerce to ports and steel, are each dominated by a handful of jumbo-size companies.
IndiGo’s management apologized and explained that a combination of factors, including bad weather and software updates, led to the cascade of missed connections. Apart from the misery inflicted on its customers, IndiGo’s failure snarled airports across the country and forced the government to temporarily roll back its new safety rule.
The stock market punished IndiGo, knocking $4.8 billion off its value. Then, the government piled on. “No airline, however large, will be permitted to cause such hardship to passengers through planning failures,” the minister for civil aviation, K. Ram Mohan Naidu, said in parliament on Monday.
Naidu said there would be “strict action” to “set an example for every airline.” Given the fast-growing demand for air travel in India, “we need to have five big airlines,” he said.
IndiGo’s bad week underscored a much broader phenomenon for India, the world’s fastest-growing large economy.
The biggest companies are squeezing out smaller competitors with brutal efficiency. India’s most profitable airports are operated by two companies and nearly 40% of India’s fuel is refined by another two companies.
“That means you have just two points of failure, that’s the risk in this kind of market,” said Rohith Jyothish, a political economist at O.P. Jindal University near New Delhi.
Since 2015, India’s five biggest conglomerates have accounted for a rapidly increasing share of India’s corporate income and assets, according to a 2023 paper by Viral Acharya, a professor of economics at New York University and a former deputy governor of India’s central bank.
There are legitimate reasons for big companies to become bigger and smaller ones to go out of business. Bigger operations can achieve savings through economies of scale. That means lower costs. At the same time, it gives companies the clout to increase profits by cutting corners or gouging customers.
And dominant companies, Jyothish said, “can use political influence, which leads to a kind of inertia of innovation,” with policies tailored to give the giants an even sharper edge.
The biggest obstacle for new companies may be access to credit. After India’s last infrastructure boom turned to bust, around 2015, lenders have been reluctant to do business with any but the most powerful companies. Zico Dasgupta and Arjun Jayadev, researchers at Azim Premji University in Bengaluru, India, compiled data to show that India’s biggest companies’ crucial advantage was access to easier borrowing.
“Bigness gives you a better chance to succeed,” Dasgupta said, as is true in many other countries. But in India, he argued, established companies’ unparalleled power to borrow is the decisive factor.
The ill effects of excessive market concentration tend to hide in the shadows. “There are classical examples,” said Jyothish, the political economist, notably the power of monopolies to buy influence and set higher prices.
The Competition Commission of India determined this year was the first time that the average market share across eight major industries could be considered “highly concentrated.”
But the commission has authority only to evaluate, and approve or reject, potential mergers, not to pare back the growth of companies and reduce concentration in industries like aviation.
India has never had a model of competitive markets to guide antitrust actions. M.S. Sahoo, an expert on markets and regulations who served on the commission in 2016, said elected governments, not regulators, would need to insist on more competitive conditions.
Just eight months ago, India’s two giant telecom companies were trailed by a third, Vodafone Idea, that was weighed down by money it owed the government. In March, the government converted much of that debt into ownership and now holds a 49% share in the company — guaranteeing that India will have at least three nationwide phone providers. But Vodafone Idea is still in danger because of overdue fees, and keeps asking the Communications Ministry for help.
The government’s ambiguous posture raises the stakes for its response to the IndiGo crisis. When the aviation minister said India needs five major air carriers, it meant his boss, Prime Minister Narendra Modi, might start tackling market concentration as a problem in its own right.
The New York Times News Service