- The airlines in India collectively hiked airfares by 25% over a week during the festive season without any prior notification, which the Air Passengers Association of India argued shows evidence of cartelization. - The domestic airline industry in India is an oligopoly dominated by a small number of major carriers. Hiking fares in tandem makes it appear the airlines are coordinating pricing as a cartel. - The Association has filed a petition with the Competition Commission of India to investigate the airlines for alleged cartel behavior in collective fare increases.

1. Presented by:
Vikas Sonwane (53)
Vatsal Thakkar (54)
News Analysis

2. THE NEWS STORY

3. Sunday, September 08, 2013Est. 1961 Price ₹ 3.00
Fare hike: Pax body cries
cartelisation, take airlines to CCI1
THE ECONOMIC TIMES
1 http://economictimes.indiatimes.com/news/news-by-industry/transportation/airlines-/-aviation/Fare-
hike-Pax-body-cries-cartelisation-take-airlines-to-CCI/articleshow/22412988.cms

4. ENTITIES INVOLVED
• APAI – Air Passengers Association of India
• CCI – Competition Commission of India
• Indian Domestic Carriers

5. KEY POINTS
• The airlines hiked airfares in tandem by 25%
over one week
• Festive season is around
– Ganesh Chaturti (September)
– Navratri (October)
– Diwali (November)
• The first one to do so was SpiceJet and others
followed
• The fare hike was effective immediately without
any notification
– Reasons cited were rise in input costs

6. KEY POINTS Continued…
• APAI filed a petition with CCI
– “There has been a hike in the aviation turbine fuel
a few days ago and all the airlines have increased
the fares by 25% one after the other. This clearly
goes to show that a cartel is in operation”
• Enquiry by CCI against Cartelisation

7. THE ANALYSIS

8. Concentration
ratio
The degree by which an
industry is dominated by a
few firms is measured by
concentration ratios
Indigo,
30%
Spiceje
t, 20%
Air
India,
19%
Go Air,
17%
Jetlite,
5%
Jet
Airways
, 17%
Market Share
Indigo
Spicejet
Air India
Go Air
Jetlite
Jet Airways
3 http://www.dgca.nic.in/reports/pass-ind.htm
Oligopoly
There are few sellers of
homogenous product or service

9. Oligopoly Characteristics
Characteristics of oligopoly
• There are few sellers of
homogenous product or
service
• Source of Oligopoly
– Huge Capital investment
– Limited Government permit
Characteristics of Indian
Airline industry
• There are only 8 domestic
carriers in India
• Sources of oligopoly
– It takes around ₹ 4000 crore in
present currency terms to start
an airline2
– It is very difficult to get a
government permit
2 http://www.airbus.com

10. Oligopoly Model
Different Oligopoly Models
• Cournot Model
• Kinked Demand Curve
Model
• Cartel Arrangements
Cartelization in Indian
airline industry
• The airlines in make a cartel
and try to increase and fix
prices in tandem on festive
occasions as seen in the
graph on the next slide

11. Mumbai Delhi Airfares4
₹ 6,300.00
₹ 7,500.00
₹ 8,300.00
₹ 5,000.00
₹ 0.00
₹ 1,000.00
₹ 2,000.00
₹ 3,000.00
₹ 4,000.00
₹ 5,000.00
₹ 6,000.00
₹ 7,000.00
₹ 8,000.00
₹ 9,000.00
September October November December
Airfares
Airfares
Normal Day
Before Diwali
On Diwali
After Diwali
4 http://www.cleartrip.com/graphs/

12. THANK YOU