IndiGo Grounded My Trip Home and Taught Me About Market Power

I spent fourteen hours at Delhi airport watching the word “cancelled” scroll down the departures board. It was a lesson in market structure.

One rule, thousands of cancellations

In early December, new pilot rest rules came into full effect. They limit night flying and require longer rest periods, for good safety reasons. Most airlines had planned for them. IndiGo, which carries well over half of India’s domestic passengers, found it did not have enough pilots to fly its schedule. Over a single week it cancelled more than two thousand flights, and airports across the country filled with stranded travellers.

My flight home to Delhi from Bengaluru was cancelled twice. Other airlines’ fares on the same route jumped to four or five times their usual price, because everyone who had been booked on IndiGo was suddenly competing for the few remaining seats.

Why one airline’s problem became everyone’s

In a market with many sellers, a problem at one company is a small problem. Customers move to competitors, who have spare capacity, and prices barely change. India’s airline industry is not like that. After Jet Airways and Kingfisher collapsed and Air India merged with Vistara, two groups now carry the overwhelming majority of domestic flyers. Economists call this a duopoly, and the market share numbers make it clear.

When one of two players stumbles, there is no spare capacity anywhere else. The other airline cannot conjure planes and pilots overnight, so it does the rational thing and raises prices. That is not greed. It is what a market does when demand suddenly exceeds supply. The government eventually capped fares on some routes, which helped a little but also showed how unusual the situation was.

Efficiency versus resilience

IndiGo became dominant because it was very good at running a lean airline: one aircraft family, quick turnarounds, few spare crew. That efficiency is why fares were low for years. The same leanness meant there was no buffer when the rules changed. Being efficient and being resilient often pull in opposite directions, and markets usually reward efficiency until the day they need resilience.

The wider point is that concentration has costs that only appear in a crisis. On a normal day, few passengers care how many airlines exist, as long as fares are reasonable. On a bad day, it is the only thing that matters. India’s aviation market is growing fast, and the question for regulators is whether it can grow with more players, so that the next bad week at one airline does not become a bad week for the whole country.