For IndiGo, mammoth market share is both tailwind and headwind

In recent weeks, the Indian domestic airline sector, mainly led by IndiGo, has found itself in a turbulent patch marked by a slew of passenger complaints and operational hiccups.

The situation throws into sharp relief the challenges of maintaining service quality in the face of overwhelming market dominance.

IndiGo at the centre of the storm

IndiGo, commanding a formidable 65 per cent share of India's aviation market, has been at the centre of this storm. This position of strength, ironically, has become its Achilles' heel. Complaints of delayed flights and poor customer service are surfacing with unnerving regularity. While these issues are not unique to IndiGo, its market share amplifies the impact.

The airline's journey to this dominant position is a tale of strategic growth and opportunity, especially after the demise of competitors like Kingfisher Airlines and Jet Airways.

However, this rapid ascent has brought with it the challenges of scaling operations effectively. The question now is whether IndiGo's size, once its biggest advantage, is turning into its most significant challenge. It is pretty apparent that IndiGo has been unable to handle the size and scale of its operations because of its vast market share. The domestic airline industry is one of the few sectors in India where a single player owns over half the market.

US approach to monopolies

This scenario draws an interesting parallel with the US approach to monopolistic market dominance. While the US has stringent antitrust laws like the Sherman Antitrust Act and the Clayton Act to prevent monopolies, these are not automatically invoked to dismantle a large company. Instead, they serve to check anti-competitive practices.

In the US, while a single company achieving near-monopoly status in an industry doesn't automatically lead to the government forcing it to split into several entities, there are certain circumstances under which action might be taken.

Antitrust laws: The US has several antitrust laws, like the Clayton Act and the Federal Trade Commission Act, designed to prevent monopolies and promote competition. Government agencies can take legal action if a company is found to violate these laws, for example, by engaging in anti-competitive practices or abusing its market dominance.

Government intervention: If a company's practices harm consumer interests, reduce competition, or create an unfair market, the government can intervene. This could involve various measures, including possibly breaking up the company. However, this complex legal process requires significant proof of the company's violation of antitrust laws.

Historical precedents: There have been recorded instances where companies have been broken up due to antitrust violations. A famous example is AT&T's breakup in the early 1980s. However, these cases are relatively rare and depend on specific circumstances.

Market dominance vs monopoly: It is essential to differentiate between a company with a significant market share (market dominance) and a monopoly. Having a dominant position isn't illegal, but abusing it to prevent competition might be.

In India, the Competition Act of 2002, later amended in 2007, plays a similar role. It ensures fair competition and checks abuse of dominant positions but does not penalise an entity merely for size. The Act is more concerned with how a company uses its dominant position rather than the dominance itself. Here are some critical aspects of the amended Act:

Prohibition of Anti-Competitive Agreements: The Act prohibits any agreement that causes or is likely to cause an appreciable adverse effect on competition (AAEC) in India. This includes agreements related to price-fixing, market sharing, bid rigging, etc.

Regulation of Combinations: The Act regulates mergers and acquisitions that have, or are likely to have, a significant adverse effect on competition in India. Companies meeting certain thresholds regarding assets or turnover must seek the CCI's approval before merging.

Prohibition of Abuse of Dominant Position: The Act prevents enterprises from abusing a dominant market position, such as by imposing unfair or discriminatory conditions or prices, limiting production or market access, and using their dominance to enter or protect other markets.

Competition Advocacy: The CCI engages in competition advocacy to promote a competitive environment through training, research, and awareness programs.

Penalties and Remedies: The CCI can impose penalties on enterprises found to violate the Act. In extreme cases, it can also order the division of a dominant enterprise.

Competition Appellate Tribunal: For appeals against CCI orders, the Competition Appellate Tribunal (COMPAT) was initially established, which has now been replaced by the National Company Law Appellate Tribunal (NCLAT).

What is IndiGo guilty of?

It is important to note that, as with similar laws in other countries, the mere existence of a monopoly is not illegal under this Act. It is the abuse of dominant positions and anti-competitive practices that are targeted. Hence, the nature and severity of the transgressions committed by the airline are crucial here.

If these transgressions are related to customer service, operational delays, or similar issues, they typically fall under consumer protection and civil aviation regulatory frameworks rather than antitrust or competition law.

In the case of IndiGo, customer service woes and operational delays fall more under consumer protection and civil aviation regulations than antitrust law. These laws ensure that a dominant player does not abuse its position to harm consumers or stifle competition.

Poor service

However, poor service, in itself, is not a ground for invoking competition law. Therefore, while IndiGo's dominant market position and the challenges it currently faces are concerns, they do not immediately signal a need for a breakup of the company. Instead, what is required is a balanced approach that addresses customer grievances, ensures operational efficiency, and maintains healthy competition.

The government's role should be to ensure that IndiGo, despite its size, operates in a manner that is fair to consumers and competitors alike. This could involve more stringent monitoring of its operations, enforcing customer service standards, and ensuring that its practices do not unfairly impede the growth of other airlines.

Size vs quality

IndiGo's current predicament is a cautionary tale of what happens when market dominance outpaces the capacity for effective management and customer care. It serves as a reminder that size, in the absence of proportional responsibility, can lead to a decline in service quality.

The need of the hour is not to dismantle the giant but to ensure it treads more thoughtfully, balancing its commercial ambitions with its duty to its passengers and the broader industry ecosystem.