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Go Big or Go Home

The frenzy to lap-up pilots and aircraft: Mere opportunistic move or a fight to remain relevant?

Its not all too well in Indian aviation. Recent news headlines about Go First highlighted a strange dichotomy of Indian aviation to me.

In India - a hyper-competitive and resource-constrained airline market- it’s not surprising to witness competitive predatory reactions by airlines upon the grounding/closure of a rival airline. Therefore, to most, airlines eyeing Go First’s resources - aircraft, pilots, slots etc - would seem like prudent opportunistic play. However, there is more than meets the eye.

Consider the peculiar characteristics of the Indian airline market:

↗ Closing in on a 60% share, the market leader IndiGo is larger than everyone else, put together! 👑

↗ The second largest player – Air India group being formed by merging three airlines - is ~50% of the market leader's size. 😳

↗ Crowded Bottom - 10 other airlines account for less than one-fifth of the market. 😰

↗ The leader, despite its massive size, is still growing faster than all its challengers! 📈 🏂

These facts stated above have grave implications for the smaller competitors:

💰 Cost leadership – While the main input costs factors such as fuel, aircraft ownership, manpower etc are, to an extent, comparable for all airlines, a large production scale, along with other factors, delivers superior unit cost for the market leader which are, arguably, impossible for competitors to match.

💪 Pricing Power – With the combination of vastly larger scale and superior cost economics than its competitors, the market leader enjoys the ability to demonstrate pricing power in markets and the timing of its choosing.

🆘 Financial viability: The ability of the largest player to drive both cost leadership and pricing power make the financial viability of smaller competitors extremely challenging. The challenge is only aggravated by the poor management and under-capitalisation of most small(er) airlines.

Bottom Line:

Competitive (Ir)relevance – Gaining size quickly by swift competitive actions is a strategic existential necessity for certain airlines and not just a tactical opportunistic play.

❗ However, beefing up rapidly on steroids can be a risky strategy as a good gym trainer will tell you often. Airlines which are uncompetitive on a unit cost basis often end up accelerating their downfall with rapid expansion. Haven’t we seen this often enough in India already?

What may be the most suitable strategy for smaller players to survive & flourish? Do share your thoughts in the comments.

Data and news: DGCA & Google

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