IndiGo-Jet deal could set stage not just for consolidation, but sector turnaround

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26 Aug, 2025 12:21

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Nitin Agrawal
Moneycontrol Research

There is a famous old joke in the airline industry: “How do you become a millionaire in the airline industry? Start as a billionaire and buy an airline”. Things are clearly not as bad they used to be: Legendary investor Warren Buffett, who once called airline industry a death trap, has invested in four major US airlines in recent times.

Apart from the impact of benign oil prices, there’s another positive: Structural changes are taking place within the industry, one of which is consolidation.

The Indian aviation sector continues to remain an attractive market, with the top three players (IndiGo, Jet Airways, and SpiceJet) commanding more than 70 percent of market share. In addition, the market has witnessed double-digit passenger growth for a while now. However, these tailwinds are yet to translate into pricing power.

Consolidation on the cards?
Interglobe Aviation (IndiGo), the leader in Indian skies, had expressed interest in acquiring Air India’s international business and Air-India Express, a low-cost carrier, when the government expressed its intention to privatise the flag carrier. As per press reports, if the deal with Air India does not fructify, then IndiGo might look at Jet Airways (Jet), indicating IndiGo’s clear focus on gaining market share in international markets through the inorganic route.

Should the deal with Jet fructify, it would lead to major consolidation. The deal would leave the industry with two large players – Indigo–Jet and SpiceJet. We believe such consolation that stands to boost yields, coupled with benign fuel prices, would place the industry in a sweet spot.

The top two players
IndiGo dominates the Indian skies with 40 percent market share and has an overall market share of 34.9 percent. Its passenger (pax) traffic registered a significant growth of close to 28 percent compounded over FY12-17, as against industry growth of close to 10 percent on the back of its no-frill products at competitive prices, reach and on-time performance.

Unlike IndiGo, which is a Low Cost Carrier (LCC) with no-frill products, Jet is a full service carrier (FSC), with an array of offerings including free meals on board, lounge facility etc.

Jet is the second largest player in both domestic and international market and has an 18.3-percent share in domestic and 38.6-percent in international markets. Jet, however, has lost significant (900bps) domestic market share over FY12-17.

IndiGo’s presence is missing in foreign skies
IndiGo has primarily focused on the domestic market till now and has executed its strategy well. It employs 90 percent of ASKM (Available Seat Kilometers –measure of capacity) to the domestic market and 90 percent of its RPKM (Revenue Passenger Kilometer – measure of traffic) comes from here. Currently, it caters to 39 domestic destinations and seven foreign destinations.

These figures indicate that IndiGo is missing out on lucrative foreign skies and the management has acknowledged this gap.

Inorganic route makes more sense
For its international expansion, IndiGo prefers the inorganic route as that would give it an immediate access to the various restricted and closed foreign markets. The management of the company also believes that it would take many years to establish a footprint in the international market if it tries to go all alone.

IndiGo is eyeing Air-India and Jet. These two Indian carriers have a significant presence in the international market and have 44.1-percent and 38.6-percent share in international market (out of India), respectively. Our earlier article analyzes the various facets of IndiGo’s possible deal with Air-India.

Jet Airways – Focused on international marketsJet is focused on international markets as is evident from the fact that it caters to 47 international destinations and employs 65 percent of ASKM to international business. Additionally, the international business accounts for 65 percent of total RPKM.

What would an IndiGo deal with Jet mean to the industry?
The pertinent question to ask is what this deal means for the industry. This deal would bring in the consolidation of the top two players in the industry. The consolidated entity would have an overall market share of more than 57 percent. Post consolidation, players would see pricing power which would translate into better yields.

We believe Air India would continue to lose market share on the back of its poor on-time performance and financial difficulties. Go Air, being a very small player, would need financial muscle to expand its fleet and operations, which would be time-consuming.

Overall, the industry seems set for further re-rating, placed as it is in a sweet spot by range-bound oil and the effects of these possible deals.

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