The dynamics of oligopoly in the Indian airline industry

There are seven Indian airlines: state-owned Air India and six private carriers. Since the onset of recession they have all been making losses and were considering a one-day ‘strike’ when services would be removed. The aim was to force the Indian government to reduce fuel and airport taxes.

Do the losses suggest that there is overcapacity in the Indian airline market? Does it matter if, during the current recession, some airlines go out of business? Are bankruptcies necessary if the surviving carriers are to be stimulated to make cost savings and are to achieve sufficient economies of scale? Or should governments offer support to struggling airlines? Is oligopoly the best market structure for such an industry and, if so, how can collusion be avoided? The following articles consider these questions.

How many airlines do we need? Business Line (The Hindu) (4/8/09)
Indian airlines call off Aug 18 strike Forbes (3/8/09)
When corporations capture the state Rediff Business (7/8/09) (see middle part of article)
Blaming everyone else Indian Express (3/8/09)
India’s air carriers spin loss riddle Asia Times Online (8/8/09)
A strategic vision for Indian aviation The Economic Times (8/8/09)
Flight to value The Economist (6/8/09)
Federation of Indian Airlines


  1. Describe the features of the market structure in which Indian airlines operate.
  2. Is the Federation of Indian Airlines a cartel?
  3. Should (a) any; (b) all Indian airlines be given government support, and, if so, what form should the support take? Should Air India be treated differently from the other Indian airlines? Explain your answer.
  4. Is it in Air India’s long-term interests to embark on a price war with the other Indian airlines?
  5. Is oligopoly necessarily the optimal market structure for a capital-intensive industry?