Did Jet Airways' Collapse Fuel India's Dynamic Economy and Airline Growth?

Economic Advisory Council to the Prime Minister (EAC-PM) member Sanjeev Sanyal recently advocated for a national comfort level with corporate failure. He stated that continuous insolvency and bankruptcy are essential for building a truly risk-taking economy in India. This perspective challenges the historical tendency to prop up large, failing companies.

Sanyal emphasized that a healthy economic system requires "continuous churn." This process involves older companies shutting down, which allows new, more efficient firms to emerge. He stressed that this constant change is necessary for long-term economic strength and resilience.

The Jet Airways Case: A Corporate Cleanup

To illustrate his point, Sanyal cited the Indian airline sector and the grounding of Jet Airways in April 2019. He recalled a period around 2017 when Indian banks were under severe stress. The government's decision to allow some of the country’s biggest companies to fail led to a necessary corporate cleanup.

Sanyal noted that this action did not weaken the corporate sector. Instead, he argued, it came back much stronger after the cleanup. The closure of Jet Airways created a vital space for other carriers to expand operations. This market correction allowed for a redistribution of assets and capacity.

Market Consolidation and LCC Dominance

Before its collapse, Jet Airways held a significant portion of the market. Its combined market share with JetLite was approximately 18.3% in 2017-18. Following its exit, low-cost carriers (LCCs) rapidly absorbed this capacity.

LCCs now dominate the Indian civil aviation market, holding about 71% of scheduled seats. IndiGo, the largest LCC, now controls over half of all domestic capacity. Current data shows IndiGo holding roughly 54% of scheduled seats. Together with the Air India Group, these two carriers control a staggering 86-90% of the domestic market. This massive shift demonstrates the continuous churn Sanyal described.

The resulting market stability has led to massive fleet expansion. Indian carriers have an order book for over 739 new aircraft. Many of these are narrowbody jets from manufacturers like Airbus, fueling the LCC growth model.

Fostering a Risk-Taking Culture

Sanyal stressed that companies failing to meet rules or standards should be allowed to shut down. He added that bankruptcy should not be viewed as a moral failure. It is a natural part of a society willing to take risks and grow. This philosophy is crucial for a dynamic economy.

He also addressed welfare policies, rejecting "freebies" but supporting a safety net. This safety net is intended to support individuals who take entrepreneurial risks. The goal is to encourage a risk-taking economy at every societal level.

Global Financial Hub Status

Sanyal also highlighted the growing strength of India's financial markets. He asserted that Mumbai financial capital is now a more important center for raising capital than London or Singapore. This growth is driven by risk-taking capital, including equity and venture funding.

This growth aligns with global trends seen in the United States and China. These nations remain strong because their leading companies change frequently. In contrast, Sanyal described Europe’s corporate stability as "stagnation". The willingness to accept failure is key to long-term dynamism, according to the EAC-PM member. Industry stakeholders, including the IATA, watch this evolution closely. For more commercial aviation news, visit our site here.

This perspective shift encourages greater entrepreneurship and resilience. It signals a move away from state intervention in corporate failures. The Indian airline sector is a prime example of this economic philosophy in action.