Market Share

Indigo
9
29.5

19.8

Jet Airways
Air India
(Domestic)

5.4
19.1

17.1

JetLite
Spicejet
GoAir

Oligopoly Market and HHI

Airline industry in India is an Oligopoly market which is
inferred from the HHI, Herfindahl-Hirschman Index. HHI should
be grater than 1800 for a market to be oligopolistic.
For Indian Air Line industry HHI score stands out to be 2029.

Market Player

Market Share

Market Share
Square

Indigo

29.6

870.25

Spicejet

19.8

392.04

Air India (Domestic)

19.1

364.81

Jet Airways

17.1

292.41

GoAir

81

JetLite

5.4

29.16

Total

100

2029.67

C4 Concentration Ratio
Low Concentration: A concentration ratio of 0 to 50
percent is commonly interpreted as an industry with low
concentration. Monopolistic competition falls into the
bottom of this with oligopoly emerging near the upper
end.
Medium Concentration: A concentration ratio of 50 to 80
percent is considered an industry with medium
concentration. These industries are very much oligopoly.
High Concentration: An industry with a concentration
ratio of 80 to 100 percent is viewed as highly
concentrated. Government regulators are usually most
concerned with industries falling into this category.

Four Concentration Ratio

Concentration ratio of four biggest market
players, Air India, Jet Airways, Indigo and
Spice Jet is around 85.6%
Four concentration ratio is calculated by
adding the market share of 4 largest firms.
(29.6+19.8+19.1+17.1= 85.6%)
Mostly the Prices are dictated by the major
Players like Indigo and Spice jet, Jet Airways.
Concentration ratio of 85.6% again confirms
that Indian Airline Industry is oligopoly.

Kinked Demand Curve

The Diagram to the left illustrates

that Indigo is producing at (P1,Q1).
However, if Indigo decides to
increase price (in the normal course
i.e. during off peak season or when
the date of travel has not
approached) above P1 other airlines
in the market will not follow. Because
they will be able to gain an
advantage through the prospect of
selling more of their tickets Indigo
customers.

Suggesting that demand curve

before the kink is considerable
elastic to increase in price.

If Indigo lowers the price all the

airlines will follow in order to not lose
the market share.

During Holiday seasons the demand

is inelastic to price which causes an
increase in prices by an airline to be

Delhi-Bangalore Snapshots(2015)
Pricing Strategy
Graph1

Graph2

Delhi-Bangalore Contd
An example to explain Peak load
pricing in airline industry
We can decipher from graph 1 that for the month of June and July 2015, no two
airlines charge the same price, which reconfirms the fact that prices are never
equal in an oligopoly market structure. However we can also infer that even though
the prices are not equal they do not differ greatly. This is because on account of
considerable price variation one airline could loose its market share to another.
On comparing the airfares on the Delhi Bangalore route during the month of June
2015(Graph 1),and around Deepawali (Graph 2) which is falling on 11 th November
2015.As we can see that the price on an average during June is around
Rs.4000,however around 11th November the price is already Rs.7500 i.e. the
industry is following peak load pricing. Moreover in the past we have seen that as
Deepawali day approaches the prices soar.

Third Degree Price Discrimination in

Airline Industry

As we can see that for 23 July 2015,for the same GoAir flight the
airline is charging different prices for different market segments i.e.
its following third degree price discrimination .The business class
ticket is approximately three times of the economy class ticket.
Moreover the airlines also follow third degree price discrimination
across different routes, day of the week, time of the day and
whether the ticket is refundable/non-refundable .The ticket prices
also vary greatly depending on whether the flight is non-stop or
direct.

We can see from the

figure on left that in
October 2014 the price
had gone as high as
$400@62.00=Rs24800.
One can also infer that
as the date approaches
the
price
elasticity
becomes more inelastic
which
enables
the
airlines to charge such
high price, however if
the same ticket is
booked well in advance
the price elasticity is
elastic as the customers
are more sensitive to
price on account of
availability
of
substitutes.

Key Points (Historical)

Airfares during festival

season 2013

In this article the airline industry was blamed of forming a cartel via
tacit collusion wherein all the airlines simultaneously raised airfares to
roughly around the same levels. Complaint was registered with the
Competition commission of India(CCI), an apex body that closely
monitors abuse of dominant market position, cartelization and bid
rigging activities are among the main anti-competitive practices.

Conclusion

Stiff Competition entry of Vistara, Air Asia (India)

Prices to remain stable

No effect of decreasing ATF (globally) on airfare in sight

Airline Companies looking for additional means of revenue
generation

Exception: Festive seasons

Promotional fare segments for increasing load factor

Cost cutting in infra no aerobridge usage
Segmentation of passenger class

Airlines continue to bleed on high Govt taxes on ATF

Approx 45-55% of operational cost goes to ATF

References

http://www.air-passenger.com/#
http://www.cleartrip.com/graphs/
http://timesofindia.indiatimes.com/business/india-business/
Airlines-special-sales-are-a-scam-Passenger-association/art
icleshow/44947759.cms
http://www.oneindia.com/new-delhi/passengers-associationcomplaints-against-air-fare-discounts-dgca-1547071.html
http://www.faredetective.com/farehistory/flights-from-Delhi
-DEL-to-Bangalore-BLR.html