Market Share
Market ShareOligopoly Market and HHIAirline 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 PlayerMarket ShareMarket Share
SquareIndigo29.6870.25Spicejet19.8392.04Air India
(Domestic)19.1364.81Jet Airways
17.1292.41GoAir981JetLite5.429.16Total1002029.67C4 Concentration
RatioLow 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 RatioConcentration 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 followed by
increase in price by others. Here in order to eliminate price
stickiness one airline mostly the one with the highest market share
becomes a price leader and the rest follow suitDelhi-Bangalore
Snapshots(2015)Pricing Strategy
Graph1Graph2Delhi-Bangalore ContdAn example to explain Peak load
pricing in airline industryWe 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 11th 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 [email protected]=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.
ConclusionStiff Competition entry of Vistara, Air Asia
(India)Prices to remain stable Exception: Festive seasonsNo effect
of decreasing ATF (globally) on airfare in sightAirline Companies
looking for additional means of revenue generation 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
Referenceshttp://www.air-passenger.com/#http://www.cleartrip.com/graphs/http://timesofindia.indiatimes.com/business/india-business/Airlines-special-sales-are-a-scam-Passenger-association/articleshow/44947759.cmshttp://www.oneindia.com/new-delhi/passengers-association-complaints-against-air-fare-discounts-dgca-1547071.htmlhttp://www.faredetective.com/farehistory/flights-from-Delhi-DEL-to-Bangalore-BLR.html
