Air India's stumble creates a bigger problem than aviation duopoly

When Tata Group took back Air India from the government in January 2022, the transaction wasn't merely a change in ownership. It was seen as the return of a once-iconic airline to the conglomerate that had founded and nurtured it. And with that came hopes that India would finally get a strong full-service carrier capable of challenging IndiGo's growing dominance.

Four and a half years later, that promise remains elusive. Air India has modernised parts of its fleet, merged airlines, invested heavily in technology and ordered hundreds of aircraft. But it is also reporting record losses and ceding market share. Tata Sons chairman N Chandrasekaran has cautioned shareholders that turnaround of Air India will take up to a decade, as mounting financial losses and persistent supply-chain bottlenecks complicate the conglomerate’s high-profile aviation bet.

Also Read|Air India turnaround to take 5-10 years, says Tata Sons' Chandrasekaran


This matters not only for Air India but the structure of Indian aviation itself. India is often described as a duopoly, with IndiGo and the Tata airline group together controlling close to 90% of the domestic market. But when one player is consistently pulling away and the other is struggling to keep up, the industry begins to look less like a duopoly and more like a market dominated by a single airline. For passengers, airports, suppliers and policymakers, that may prove more troubling than the duopoly debate itself.



A market tilting further towards IndiGo
The latest traffic data illustrates the widening gap between IndiGo and Tata's airlines. IndiGo's domestic market share reached an all-time high of 66.3% in June, according to DGCA data. The Air India group, which includes Air India and Air India Express, saw its share fall to 23.9%, down from 27% in February and 25.6% in May. Akasa Air remained a distant third with 6.4%, while SpiceJet's share slipped below 2%.

The fall in numbers matters because aviation is a scale business. Airlines with larger networks attract more passengers, gain greater bargaining power with airports and suppliers, enjoy better aircraft utilization and can spread fixed costs across a wider operation. Once a carrier crosses a certain threshold, the advantages begin to reinforce themselves. IndiGo is increasingly operating from that position of strength. Air India, despite the backing of one of India's largest business groups, is moving in the opposite direction. Recent losses have forced capacity reductions at a time when IndiGo continues to consolidate its leadership.

The result is a market where the second-largest airline group is becoming less capable of disciplining the market leader through aggressive expansion, pricing pressure or network competition.

The Air India turnaround challenge is just too big
Chandrasekaran's comments are a public acknowledgment of how difficult the Air India turnaround project has become. In Tata Sons' latest annual report, he describes Air India's transformation as a 5-to-10-year journey. He pointed to lingering component delays, legacy tech infrastructure and the necessity of building an upgraded technical workforce as primary friction points. "This year, Air India faced three external headwinds. Airspace closures; West Asia conflict-driven fuel price hikes and foreign exchange fluctuations; and the crash of AI171 made it the most challenging year for Air India. At every stage, Air India’s teams responded with resilience and adaptability,” he added. The corporate turmoil led to the departure of CEO Campbell Wilson, prompting Chandrasekaran to step in directly to oversee weekly operational reviews across flight operations, commercial strategy, and financial engineering.

Tata Group had entered the acquisition with expectations that operational improvements would begin showing visible results much sooner but losses have deepened. Air India reported a net loss of more than Rs 22,000 crore in FY26, more than double the previous year's loss of Rs 10,859 crore. The airline has now absorbed years of heavy investment while simultaneously dealing with disruptions that have complicated its recovery plan.

Also Read|ET Exclusive: Tata Sons reported a 22% increase in annual profit for the year ended March 26

The challenge facing Tata is fundamentally different from launching a new airline. Air India was not merely a financially weak company when it was acquired. It was an organisation carrying decades of accumulated operational, technological and cultural baggage. The turnaround requires rebuilding systems while at the same time continuing to operate one of the country's largest airline networks. Few aviation transformations globally have been attempted on this scale.

Air India's legacy problems linger on
Much of Air India's current struggle can be traced to the condition in which the airline was inherited. For years under government ownership, Air India suffered from chronic underinvestment, political interference, inefficient decision-making and an aging fleet. Product quality deteriorated while competitors modernized. Technology systems lagged global standards. Maintenance processes became fragmented. Customer experience fell behind rivals.

When Tata assumed control, it inherited aircraft with outdated cabins, inconsistent service standards, complex maintenance requirements and technology platforms that required replacement. The group quickly announced ambitious modernisation plans, but repairing decades of neglect was never going to happen overnight. The airline has had to simultaneously replace technology systems, refurbish aircraft interiors, integrate workforces and retrain employees while maintaining day-to-day operations. Each of those projects would be demanding on its own. Air India is attempting all of them at once.

Merging four airlines into one
One of the most complex elements of the turnaround has been consolidation. Tata found itself operating Air India, Air India Express, Vistara and AirAsia India after a series of acquisitions and ownership changes. The long-term solution was to merge these carriers into a more coherent structure.

While strategically sensible, airline mergers are notoriously difficult. They involve integrating fleets, harmonising employee contracts, merging reservation systems, standardizing operating procedures and aligning corporate cultures. The integration process has consumed management bandwidth and created operational complexity at a time when the airline was already undertaking a large-scale transformation. The benefits of consolidation are expected to emerge over time, but the costs and disruptions are being felt immediately.

The problem Air India can't control
Perhaps the biggest challenge facing Air India today is one that affects airlines globally. Aircraft manufacturers and engine suppliers continue to face supply chain disruptions years after the pandemic. Deliveries have been delayed across the industry. Spare parts remain difficult to source. Maintenance turnaround times have lengthened. Air India has repeatedly highlighted shortages of components and delayed deliveries as major obstacles. This is particularly frustrating because Tata's strategy depends heavily on fleet renewal. The airline placed one of aviation history's largest aircraft orders, betting that newer aircraft would improve reliability, reduce fuel costs and strengthen the passenger experience.

But an airline cannot modernise as quickly as planned if aircraft and engines arrive late or spend longer periods in maintenance facilities. The result is a mismatch between strategic ambition and operational reality.

When external shocks hit the recovery
Even if Air India had executed every internal initiative perfectly, the past year would still have been extraordinarily difficult. The West Asia conflict pushed up fuel costs and created operational uncertainty. Foreign exchange fluctuations increased expenses for a business that incurs significant dollar-denominated costs. Airspace restrictions forced route adjustments and added complexity to international operations.

And then came the AI171 crash. Beyond the human tragedy, the incident subjected Air India to intense scrutiny from regulators, investigators and the public. Airlines emerging from major accidents often face reputational challenges, operational reviews and management distractions that can persist for years. For an airline already in the middle of a transformation, the timing could hardly have been worse. These external pressures did not create Air India's underlying problems, but they undoubtedly made solving them more difficult.

Why Air India's weakness matters for aviation sector
The consequences of Air India's struggle to turn itself around extend beyond one company. A healthy aviation market does not necessarily require many large airlines as several countries function effectively with two dominant carriers. What matters is whether both players possess the financial strength and operational capability to compete aggressively. That is where concerns about Indian aviation begin to emerge.

If Air India remains financially weak, it may be forced to prioritise survival over expansion. Capacity growth becomes more cautious. Route launches become more selective. Promotional pricing becomes harder to sustain. Investments may need to be paced more carefully. Meanwhile, IndiGo continues expanding from a position of relative strength. The danger is not that India formally becomes a monopoly but that competition becomes less effective. When one airline controls roughly two-thirds of the domestic market and the nearest challenger is focused on fixing internal problems, the competitive pressure that typically benefits consumers begins to weaken. That can affect fares, connectivity and service innovation over time.

But Tata's aviation bet is still alive. Despite the setbacks, it would be premature to conclude that the turnaround is failing. Air India's narrow-body fleet refurbishment programme is complete. Wide-body retrofits are underway and expected to continue through FY28. New aircraft continue to enter the fleet and technology systems have been upgraded. Customer satisfaction metrics have improved from the levels seen during the final years of government ownership. Management also argues that several operational indicators are moving in the right direction even if financial performance remains weak.

The challenge is that aviation turnarounds rarely progress in a straight line. Airlines can improve operationally while continuing to lose money, and investments often precede benefits by several years. Tata's leadership clearly believes that Air India remains recoverable. The willingness to publicly term the project as a decade-long effort suggests the group is preparing investors and stakeholders for a longer journey rather than abandoning the ambition.

The stakes go beyond Air India
The debate over Indian aviation has long centered on whether a duopoly is healthy but a new question is emerging now. What happens when one half of the duopoly struggles to function as an effective challenger? Air India's revival was supposed to create a powerful counterweight to IndiGo's dominance. Instead, the airline remains caught between inherited problems, industry-wide disruptions and the enormous demands of a transformation that may take years longer than initially expected.

For Tata Group, that means continuing to spend heavily in pursuit of a difficult turnaround. For the aviation sector, it means the competitive balance remains unsettled. And for policymakers, it raises an uncomfortable possibility that the bigger risk is no longer a duopoly, but a market where only one player is consistently strong enough to shape the industry's direction. That's why there has been the buzz recently about the government allowing airport companies to start their own airlines which would pave the way for Adani's entry into aviation. But Adani Group has denied these reports. But given a duopoly with a stumbling challenger, there will always be space for a deep-pocket company to enter the sector.