Game Theory, Airline Monopolies in India, and What It Means for You as a Traveler

We all have reasons to travel( Apart from Business Travel ) —whether for personal reasons, holidays, or emergencies. It's often in these moments that we truly confront the reality of airfares in India. A domestic fare of INR 16,000 one-way might be justified by airlines as part of their yield management strategy. However, the suspicion lingers: could they charge such high fares if it weren't for the near-monopoly situation in the Indian aviation market?

While supply and demand dynamics, profitability, and growth pressures are common explanations in any business, there's another perspective to consider. Understanding some basic concepts from game theory, particularly the 'Tit for Tat' strategy, can offer valuable insights into how airline monopolies in India could impact your travel experience in the long run.

What Is the 'Tit for Tat' Strategy?

In simple terms, the 'Tit for Tat' strategy encourages cooperation. Imagine you're playing a game where you and your opponent decide how to split a reward. You start by being cooperative, but if the other person takes advantage of you, you retaliate in the next round. This cycle continues, creating an environment where mutual cooperation is the best strategy because no one wants to be on the losing side for long.

In the airline industry, this manifests in pricing wars, route selections, and service levels. For example, if one airline lowers its fares, others might follow suit to stay competitive. This competition can lead to better deals for travelers like you as airlines strive to attract more customers. But what happens when fewer airlines are left to compete?

The Growing Monopoly in Indian Aviation

Over the past few years, the Indian aviation market has experienced significant consolidation. Jet Airways and Go Air have fallen off the radar and now have gone out of business, and larger ones have merged, the latest being the Air India and Vistara merger announcement, leaving a few big players dominating the skies. Indigo, for instance, controls nearly 60% of the domestic market, while Air India, after its acquisition by the Tata Group, is emerging as a powerful player with an international focus...

For travelers, this trend toward monopoly can have several negative effects:

1. Higher Airfares: With less competition, major airlines have more control over pricing. The absence of pressure to undercut competitors allows fares to rise, making it more expensive for you to travel. Just read an article where according to DGCA, average domestic airfares increased by 25-30% in the last two years.
2. Less Innovation: When competition diminishes, so does the incentive for airlines to introduce new services, improve efficiency, or offer perks. This can result in fewer innovations, less comfort, and limited choices for you... or your free ancillary services that you once enjoyed are now chargeable ;)
3. Declining Service Quality: If an airline knows that you have few alternatives, customer service might not be prioritized. This could lead to a decline in the overall travel experience—from check-in to in-flight service.

The Long-Term Impact on Your Travel Experience

From a game theory perspective, the shift towards monopoly in the Indian airline industry could disrupt the 'Tit for Tat' strategy. In a competitive market, airlines are motivated to cooperate with their customers by offering better prices and services, knowing that failure to do so could result in losing business to competitors. But in a monopolistic market, dominant airlines might no longer feel the need to 'play fair.' Without the threat of competition, they might prioritize profits over your travel experience.

Over time, this could lead to a downward spiral where your choices as a traveler become increasingly limited. As smaller airlines disappear and the big ones grow more powerful, you might find yourself paying more for less. The lack of competition could mean fewer innovations, lower service standards, and a general decline in the quality of air travel in India.

What Can Be Done?

To protect your interests as a traveler, regulatory oversight is essential. The Indian government and DGCA need to step in to ensure that the market remains competitive. This could involve enforcing laws that prevent monopolistic practices, supporting smaller airlines, and encouraging new players to enter the market... While it's happening we are far from a competitive scenario.

A healthy level of competition benefits everyone. For me and you, it means better prices, more choices, and a higher quality of service. By understanding the risks posed by airline monopolies, you can make more informed decisions about your travel plans and advocate for a more balanced and fair aviation market in India.

and so it means...

As an individual traveler, the dynamics of game theory and airline monopolies may seem distant, but they have a direct impact on your travel experience. The trend towards fewer, more powerful airlines in India could lead to higher costs, lower service quality, and fewer options for you. Staying informed and supporting efforts to maintain competition in the industry can help ensure that your travel experiences remain enjoyable and affordable... what's your take? Will the situation change with Air India coming strong?