Price wars, financial distress and collusion in India airline industry

Abstract

Spicejet and IndiGo, along with other Indian airlines, have participated in multiple price wars over the last 4 years. The reasons behind these price wars, as provided in the mainstream media, are numerous and range from boosting industry demand to distressed financial condition of the firms. While there exist many studies on US, China and other country-specific airfare wars, the price wars by major Indian airlines need to be understood in specific context of Indian Aviation Industry, airline financial health, consumer behaviour and government regulations. Our study aims to chart the recent price wars in the industry, focusing on those started by SpiceJet and describe the linkages between financial distress, demand fluctuation and threat of new entrants with price wars. We have used newspaper reports, quarterly financial reports of the companies and returns on the stock index as indicators of financial performance and existence of price wars.