ANALYSIS-Too big to fail? IndiGo crisis exposes risks in Indian aviation

By Abhijith Ganapavaram

NEW DELHI, Dec 8 (Reuters) - A wave of flight cancellations by IndiGo, India's largest airline, sparked a week of chaos and grounded tens of thousands of passengers, laying bare the risks of having a duopoly-like situation in the world's fastest-growing aviation market.

For years, IndiGo with a 65% domestic market share has helped Indians realise their dreams of flying -- an aspiration shared by Prime Minister Narendra Modi who once said those "in slippers should also be seen in aircraft".

The airline became the poster child of the nation's aviation boom in recent years, with its promise of low fares and on-time performance.

But last week changed it all: IndiGo cancelled at least 2,000 flights because of a shortage of pilots after it failed to plan adequately for new rules limiting how many hours they work. That upended vacation plans, weddings and flooded social media with photos and videos of luggage piling up at terminals -- scenes never witnessed in India's aviation history.

IndiGo's woes come at a critical time for the airline and the industry. Rival Air India, which commands a 27% market share and was owned by the government until 2022, has for years faced complaints of an ageing fleet and poor service, and is battling tighter scrutiny since a June crash killed 260 people.

IndiGo has said it hopes to return to normalcy in the coming days, but its troubles have drawn warnings from both politicians and aviation experts. The crisis has raised concerns about the risks of over reliance on a single carrier and whether the airline is really too big to fail.

The government stepped in swiftly, relaxing rules on pilot fatigue management to ease the disruptions. IndiGo has repeatedly apologised but has not disclosed financial losses from the crisis.

"IndiGo's size has grown to the point where operational setbacks pose systemic risk," said Harsh Vardhan, chairman of Starair Consulting.

If IndiGo or Air India get into "trouble, there will be mayhem in Indian aviation ... the government needs to reduce jet fuel taxes and encourage more competition," he added.

INDIGO'S DOMINANCE IN INDIA

Airline duopolies exist in a few countries, such as Australia and Canada. Even China, the world's second most-populous nation, has three state-owned carriers, and several private ones.

India's aviation market is not a duopoly in the strictest sense but analysts say that 92% market share of IndiGo and Air India - including its low-cost Air India Express - means it is a duopoly-like situation and creates vulnerabilities.

On many routes connecting smaller towns, IndiGo holds a monopoly.

"A country cannot grow robustly with duopolies, or effective monopolies, in any sector," G.R. Gopinath, founder of now-defunct low-cost airline Air Deccan, wrote in a weekend editorial in the Economic Times newspaper.

Despite government efforts to expand airports and simplify operations rules, few carriers have succeeded. High taxes, fierce competition and supply-chain snags have driven airlines like Kingfisher, Jet Airways and Go First into bankruptcy in recent years.

IndiGo did not respond to a Reuters request for comment. On Sunday, it said it was on track to operate more than 1,650 flights and expressed confidence that operations would stabilise by Wednesday.

RAPID RISE OF INDIGO

Modi spoke of his ambitions for India's aviation sector at the global airlines conference in New Delhi this year, but that vision mostly depends on IndiGo and Air India's success.

About 174 million passengers travelled from and within India by air in 2024, 10% more than a year ago, International Air Transport Association data shows.

Founded in 2006 by Indian businessmen Rakesh Gangwal and Rahul Bhatia, IndiGo has grown rapidly. It now has a fleet of more than 400 aircraft, mostly Airbus AIR.PA A320s, and serves close to 380,000 customers a day through its more than 2,000 daily flights.

The airline is led by CEO Pieter Elbers, former chief of KLM Royal Dutch Airlines.

"This seems to be the lowest point in the company's history. Disruptions are hurting the brand image," said an IndiGo executive, who declined to be identified due to the sensitivity of the matter.

With $9 billion in revenues and $807 million in profits last fiscal year, IndiGo dominates India's aviation sector. It will likely face a hit to its annual revenue due to disruptions -- with customer refunds as of Sunday already touching $68 million, and set to rise.

But the bigger hit will be to its reputation, built over years by making punctuality a key selling point.

An IndiGo commercial on YouTube from 2011 had pilots and other staff singing in unison: "Every time we fly, we will ensure you will land on time."

The carrier had an average on-time performance of 91.4% as recently as July - the best among Indian airlines at six major airports. However, on Friday, that figure plunged to just 3.7%.

The crisis is reminiscent of Southwest Airlines' holiday season meltdown in 2022, which led to cancellation of 16,900 flights and stranded over 2 million passengers. Those disruptions cost the U.S. carrier at least $400 million in revenue.

(Reporting by Abhijith Ganapavaram, Aditi Shah, Ashwin Manikandan, Arpan Chaturvedi; Editing by Aditya Kalra and Jacqueline Wong)

((Email: Abhijith.G@thomsonreuters.com; Mobile: +91-9019785574;))