Back to projects

Case study · Project appraisal

Should a new airline enter the Indian market?

Indian civil aviation is one of the country's fastest-growing industries — the third-biggest domestic market in the world, with Rs. 35,000 crore (US$4.99bn) of investment forecast and 2,380 additional aircraft needed by 2038. This appraisal asks whether launching into it is actually a good investment.

View the full report
Aviation market entry appraisal

Competitive structure

Porter's five forces

Rivalry among existing firms

Fierce

IndiGo, SpiceJet and AirAsia hold over 80% of the Indian market — IndiGo alone at 57%, AirAsia around 26% and SpiceJet 16% (as of 2020). They win on the most competitive prices and the widest connectivity, and match each other's discounts immediately. A new entrant has to beat that on both cost and network.

Bargaining power of suppliers

Very high

Boeing and Airbus supply close to 90% of the world's aircraft, and fuel comes from just three companies — Indian Oil, BPCL and HPCL. With no real competition, suppliers set prices at will.

Threat of substitutes

High

Railways connect the same cities far more cheaply. Many Indians cannot afford to fly, so a new carrier is competing not just with airlines but with trains.

Threat of new entrants

Low

The industry has become effectively immune to new entrants — long-established players dominate, and added capacity pushes prices and profitability down.

Bargaining power of buyers

High

Buyers chase the lowest fare, switch cheaply, and gain further leverage in bulk corporate bookings.

Environmental scanning

PEST analysis

External forces also include ATF prices — the single biggest driver of operating cost — oil company pricing policy, epidemics like COVID-19 and SARS, and better highways and fast trains eating into short-haul routes.

Political

Tailwinds

  • Open sky policy / deregulation
  • Low entry barriers
  • FDI limits

Headwinds

  • International travel restrictions

Economic

Tailwinds

  • Growing middle class income
  • Consistent GDP growth
  • Hike in average income
  • Growth in tourism

Headwinds

  • Rising ATF price

Socio-cultural

Tailwinds

  • Growing middle class
  • Domestic leisure travel
  • Foreign tourists
  • Air travel as a status symbol

Headwinds

  • Security issues and terrorism

Technological

Tailwinds

  • Modernized airports
  • Greenfield airports

Headwinds

  • Video conferencing / VOIP

Internal factors

SWOT

Strengths

  • Huge population and strength of the product
  • Changing lifestyles
  • Low labour cost
  • Safest mode of travel
  • Highly trained staff and advanced technology

Weaknesses

  • Lack of infrastructure
  • Fixed revenue
  • Still expensive for most travellers

Opportunities

  • Improvement in investment
  • Technological advancements
  • Cargo services
  • Increasing flight frequency
  • Chartered flight services

Threats

  • High fuel prices
  • Continuously changing FDI rules
  • Barriers to exit
  • Threat of terrorist attacks
  • Shortage of skilled manpower

Sizing

Guesstimating market demand

  1. Step 1

    Assume 40% of India's population travels domestically, split 10% roadways, 20% railways and 10% airways — railways being cheaper and more accessible.

  2. Step 2

    So 10% of a 130 crore population — 13 crore people — form the potential customer base.

  3. Step 3

    Spread uniformly across the year at one trip each, that is 13 crore / 365 = 356,164 travellers a day.

  4. Step 4

    Supply: a fleet of 707 aircraft, averaging 180 seats, at a maximum of 3 trips a day = 381,780 seats.

  5. Step 5

    Existing carriers therefore already cover 82.45% of daily demand.

If you did enter

Strategy formulation

Financial

  • Debt
  • Sale and leaseback

Marketing

  • Low advertising spend
  • Strategic marketing

Operations

  • Single type of aircraft
  • Single class
  • Low average fleet age
  • Fuel and route planning
  • Tightly framed maintenance contracts

Cost reduction

  • More fuel-efficient aircraft
  • New technologies and biofuel to cut emissions
  • Winglets to reduce drag and fuel use
  • Removing excess weight
  • Limiting plane idling times

Where the industry sits

Product life cycle

Introduction

The airline industry began in early-1900s Europe and boomed after World War 2. Indian aviation started in 1932 with Tata Air Services, founded by J.R.D. Tata as an airmail carrier; after independence the Government of India acquired 49%.

Growth

In 1953 the industry was nationalised and merged into Air India and Indian Airlines. In the 1990s, during India's financial crisis, deregulation let private airlines back in — Jet Airways, ModiLuft and the industry we know today.

Maturity

The explosion of airlines and low fares pushed India into the third-largest aviation market, needing thousands of new aircraft. Foreign carriers like Emirates and Qatar now hold significant share, and the industry is moving from growth into maturity.

Decline

Not yet reached. Kingfisher and Jet Airways failed on managerial shortcomings rather than industry decline. Future technologies like Hyperloop may eventually erode it, but air travel remains the fastest mode of transport.

Verdict

The investment is not very fruitful. Porter's analysis shows a market dominated by entrenched players with powerful suppliers; the guesstimate shows a saturated, slow-growing market where existing capacity already meets 82% of daily demand; PEST and SWOT point the same way. Unless a technical advance makes air travel meaningfully cheaper, this is a weak investment.

View the full report