Is Airlines Industry a case for natural monopoly?

 The combined net losses for the global air transport industry for the trailing twelve months( Jan 2023 data) is a whopping $16,238.52 millions. The free cash flow to equity after debt cash flows is even worse at a negative $43,079.23 millions for a total of 155 firms across the globe. Probably there is no other industry that has destroyed so much value! Please take a look at the charts below.


Data Sourced from Prof. Damodaran website/S & P Capital IQ

This is not the first year that it has happened. For more than couple of decades airlines industry has been making losses across geographies. The fate of the industry is closely tied to fuel prices, whenever the prices rise, the distress in the industry deepens. One is forced to wonder if the airlines industry is a case for natural monopoly like utilities. This is one of those rare cases where competition has worsened the situation for all the stake holders. 

Co-operation and Consolidation

It's high time for co-operation and consolidation in this key industry. Co-operation by way of route sharing, seat sharing, crew and maintenance sharing can be profitable for all the carriers.

Indian situation

In case of India, there is impressive growth in the total air passenger traffic but it is limited to select routes between metros. For Tier-2 and Tier-3 cities the prices are too steep and services are limited. 

On routes which are not commercially viable for the service provider and unaffordable for the commuter, co-operation by way of seat-sharing is more suitable. 

The ideal situation is when air travel is available and affordable for a vast majority of the long distance commuters. Road  and rail transport can complement air travel wherever possible and rail transport can focus more on goods transport over long distances.

This article is a Work In Progress

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