For nearly four decades after the Air Corporations Act came into force in 1953, scheduled commercial air services were dominated by Air India and Indian Airlines. Air travel remained expensive and was largely confined to business travellers, government officials and affluent Indians. That changed in 1991, when the Centre introduced the Air Taxi Scheme, allowing private operators to enter the sector as non-scheduled carriers. The Air Corporations Act was repealed in 1994, formally opening the market to scheduled private airlines.
“The 1991 reforms were extremely remarkable because private airlines were allowed to operate. That was a very big decision at the time and it enabled a world-class airline like Jet Airways to emerge. It demonstrated the quality of Indian private enterprise in aviation,” says Kapil Kaul, chief executive officer and director at aviation consultancy firm CAPA India.
The reforms triggered the first wave of private airlines, including East-West Airlines, Damania Airways and ModiLuft. The new entrants broke the state-run duopoly and introduced greater competition and improved service standards. Yet, most entered a business that demanded far deeper financial resources than anticipated. East-West shut down after financial troubles worsened following the assassination of founder Thakiyudeen Wahid in 1995. Damania Airways and ModiLuft also exited within a few years. Jet Airways and Sahara Airlines emerged as the principal survivors, with Jet eventually building one of India’s largest domestic and international networks.
The early failures highlighted structural weaknesses that would continue to define Indian aviation. Airlines operated in a high-cost environment characterised by expensive aviation turbine fuel, inadequate airport infrastructure, limited capital and evolving regulation.
“From the time private airlines were allowed in 1991, the core issue has been under-capitalisation. Airlines entered the market without sufficient financial strength and then discovered that this business requires a continuous flow of capital. That challenge has remained one of the defining characteristics of Indian aviation,” Kaul says.
The next major phase of growth began in the early 2000s, when flying started becoming affordable for the middle class. Captain G R Gopinath’s Air Deccan introduced India’s first successful low-cost carrier model and popularised promotional fares at just ₹1. Budget airlines such as SpiceJet, GoAir and IndiGo expanded rapidly, forcing full-service carriers to lower fares and widening access to air travel.
The period also witnessed important policy changes. Airport privatisation gathered pace with Delhi and Mumbai being handed to private operators, while greenfield airports at Bengaluru and Hyderabad created a new model for infrastructure development. Air India embarked on a major fleet expansion, and Indian carriers gradually strengthened their international presence, although overseas operations remained governed by the 5/20 rule (you can operate international flights only if you have five years of experience and 20 planes) until it was replaced by the 0/20 norm in 2016.
“From 2004, low-cost airlines were encouraged, Air India was allowed a major fleet renewal, Indian carriers
were permitted to expand globally and airport privatisation gathered momentum. That period fundamentally reshaped Indian aviation,” Kaul says.
Passenger numbers surged, but profitability remained elusive. Fierce fare competition coincided with rising fuel prices and increasing operating costs. Airlines continued to earn revenues in a highly price-sensitive market while many of their expenses, including aircraft leases and maintenance, remained linked to the dollar.
Kingfisher Airlines became the biggest casualty of the period. Launched in 2005, it acquired Air Deccan two years later to accelerate expansion and qualify for international operations. Heavy borrowing, aggressive growth, integration challenges, rising fuel costs and the global financial crisis eventually pushed the airline into collapse in 2012. Jet Airways, despite acquiring Air Sahara and building India’s leading private airline, also succumbed to mounting debt and intense competition, suspending operations in 2019.
Market consolidation
Subsequent years brought further consolidation. Go First suspended operations in 2023 after prolonged financial stress, while Vistara was merged into Air India as the Tata Group consolidated its airline business. The return of Air India to the Tata Group in 2022 marked another landmark reform, ending nearly seven decades of state ownership and setting the stage for one of the industry’s biggest turnaround efforts.
“I treat Air India’s privatisation as the most historic decision in Indian aviation. It was a bold reform, it required courage and it was an extremely positive reform. Honestly, I do not think such a decision could have been taken without strong political conviction,” Kaul says.
The sector’s growth has nevertheless been extraordinary. Domestic passenger traffic has increased from about
14 million in 2004-05 to around 168 million today. Private airport operators have expanded capacity, airlines have placed record aircraft orders and India has emerged as one of the world’s largest aviation markets.
The financial record tells a different story. “While India has made tremendous progress in growth, scale and airport development, airlines have lost about $25 billion since 2004. The challenge is not just to grow aviation, but to make the airline business economically viable. We want more airports, more aircraft, more connectivity and more long-haul operations. But we also have to ask how we make airlines financially sustainable. Growth without viability cannot be the long-term answer,” Kaul says.
The industry’s cost structure remains one of its biggest hurdles. Fuel and taxation account for a significant share of airline expenditure, while regulatory requirements, security obligations, market access rules and consumer protection requirements add indirect costs that are less visible but equally significant.
Kaul also points to the disconnect between regulatory entry requirements and the capital actually needed to
survive.“If you have a paid-up capital of ₹50 crore, you can technically start an airline. But if you want to survive and compete in India today, you probably need a capitalisation plan of around ₹10,000 crore. The gap between regulatory requirements and commercial realities is enormous,” he says.
Today’s market is more consolidated than at any point since liberalisation. IndiGo has established itself as the dominant airline through disciplined cost management and a strong balance sheet. Air India, backed by the Tata group, is investing heavily in fleet renewal and network expansion, while SpiceJet continues to battle financial challenges in an increasingly competitive market.
As the industry expands, attention is shifting from growth to governance. Passenger traffic, fleet sizes and airport investments have increased sharply, placing greater demands on regulators. Industry executives say that the next phase of aviation growth will depend as much on institutional capacity as on market demand.
“The sector has become so large that the most important issue today is air safety. Air safety requires a completely new regulatory regime. You cannot continue growing at this scale with the existing safety regulatory structure.
We need to completely modernise and revamp DGCA along the lines of leading global regulators,” Kaul says.
The reforms now must go beyond safety oversight to include aviation security, consumer protection, competition policy and technology-led regulation. As the market consolidates around fewer airlines and airport operators, stronger institutions will be essential to ensure fair competition and protect passenger interests.
