It has been nearly 30 years since the government came up with open skies policy or deregulation of the airline sector. This period has also seen grounding of 20 airline companies starting with East West Airlines down to the latest with Go First.

The Indian airline sector presents a complex case study in deregulation. While deregulation aimed to promote competition and efficiency, the sector has faced challenges that highlight the importance of careful planning and regulation.

Many airlines were backed by strong promoters, some had even tie-ups with foreign airlines, and a few went on to achieve world class standards on customer service but despite all that during the last 30 years, duopoly has been the norm with the latest being that of Air India (backed by Tatas) and IndiGo, which has a cascading effect not only for individual travellers but for the other sectors especially that of Tourism.

India has the potential to be the third largest civil aviation market. The National Civil Aviation Policy, 2016 explicitly highlights the employment potential of the sector. Despite significant government initiatives, it might now be a time for re-regulation.

Leasing Issues: The framework till recently did not support the effort due to lack of leasing companies in India. By a proper framework it can bring proper cost structures, fleet flexibility, operational efficiency and help spread risks.

Lack of Effective Competition: Deregulation alone did not lead to a competitive market in India’s airline sector. Instead, it resulted in the dominance of a few major players. The current LCCs in India don’t match the fare structures of their outlook and this has been mainly on account of appropriate measure to improve competition.

Regulatory Challenges: Deregulation was not accompanied by sufficient regulatory oversight and enforcement to ensure fair competition. This led dominant players to maintain their market position, hindering the entry of new competitors. The US in contrast has a robust regulatory framework overseen by the Federal Aviation Administration (FAA) and the Department of Transportation (DOT), which monitor competition and safety standards.

Financial Instability: Deregulation without adequate safeguards against financial instability can lead to the emergence of financially precarious airlines. In India, several airlines have faced financial challenges, leading to bankruptcies, mergers, or acquisitions.

Consumer Welfare Concerns: Deregulation should ultimately benefit consumers by offering them more choices, lower prices, and better services. However, in the Indian context, the dominance of a few players has limited competition, affecting consumer welfare and perhaps leading to poor service due to lack of consumer charter or a legislation to protect consumers on tickets purchase, cancellation, reschedule, loss of baggage, damage or delayed baggage.

Infrastructure Constraints: India’s aviation infrastructure including air traffic management system and airports have struggled to keep pace with the induced demand resulting in rapid growth in air travel demand leading to increased costs for airlines.

Overall, the Indian airline sector’s experience with deregulation underscores the importance of comprehensive regulatory frameworks, infrastructure development, and competition policies to ensure a balanced and competitive market environment. Simply removing regulations without addressing underlying challenges can hinder the sector’s growth and development.

In June 2008 former CEO of American Airlines, Robert Crandall stated: “The consequences of deregulation have been very adverse. Our airlines, once world leaders, are now laggards in every category, including fleet age, service quality and international reputation. Fewer and fewer flights are on time. Airport congestion has become a staple of late-night comedy shows. An even higher percentage of bags are lost or misplaced. Last-minute seats are harder and harder to find. Passenger complaints have skyrocketed. Airline service, by any standard, has become unacceptable.”

Crandall has also criticised deregulation for causing airlines to cut service to smaller airports, resulting in a “relatively unsatisfactory transportation network”.

Are the Indian airlines getting there or already there and if so is it time for re-regulation?

The writer has worked in infrastructure, aviation and SEZ in the last 25 years and is currently a doctoral candidate in NALSAR, Hyderabad