Regulatory Production of Duopoly: ATF Taxation, Slot Allocation, and Competition in Indian Aviation
[Shaurya and Sheen are students at Hidayatullah National Law University.]
In May 2026, India’s largest carriers, IndiGo and Air India had curtailed portions of their domestic schedules in response to rising aviation turbine fuel (ATF) prices. The development significantly reduced capacity in India's fastest-growing aviation market. Additionally, it highlighted that the two carriers together account for nearly 90% of domestic passenger traffic, leaving only a marginal share to the remainder of the industry.
In such situations, the conventional inquiry under the contemporary antitrust regime would focus on whether market power has been acquired or exercised through anti-competitive agreements, exclusionary conduct, or abuse of dominance. Concentration has increased sharply, following the exit of Jet Airways in 2019 and Go First in 2023 and yet evidence of explicit collusion remains elusive. But, the structure of Indian aviation presents a more complicated challenge. Despite increasing concentration, evidence of explicit collusion remains elusive, since the Competition Act 2002 (Act) largely remains oriented towards identifiable misconduct rather than concentrated market structures.
This article argues that the conduct-based review under the Act may not be able to reach a significant share of the market because the power is substantially structural as it is sustained by the continued exclusion of ATF from the goods and services tax (GST). The contemporary structure of the Indian aviation market suggests that concentration may emerge through mechanisms that operate beyond the traditional domain of competition law. As neither Section 3 nor Section 4 is designed to reach concentration, competition policy requires an ex-ante, structure-focused instrument, modelled on the market-investigation power, not replace, the Act's existing conduct-based jurisdiction.
Against this backdrop, Part II sets out the structural concentration in Indian aviation and the specific limits of Sections 3 and 4 in addressing it. Part III examines ATF taxation and slot allocation as the two principal mechanisms generating that concentration. Part IV develops the normative case for an ex ante structural instrument and addresses the strongest objections to it. Part V concludes.
Structural Concentration in Indian Aviation
The Competition Commission of India (CCI) defines relevant markets in aviation on an origin and destination basis which treats each city pair as a distinct market, consistent with its approach in Jet Airways (India) Limited / Etihad Airways PJSC. This approach captures demand-side substitutability well but is poorly suited to capturing supply-side advantages that operate across routes such as network density and fleet scheduling flexibility, all confer advantages that a route-by-route market definition understates.
According to the information provided by the Ministry of Civil Aviation before the Rajya Sabha on 30 March 2026, IndiGo accounts for approximately 64% of the domestic market share and the Air India Group owns about 27% of the market. Such levels of concentration are more of an oligopolistic market, marked by strategic interaction between a small number of firms, rather than market rivalry. Although the Herfindahl–Hirschman Index is not a measure of competitive harm, it provides a useful indicator of market structure that warrant closer scrutiny by competition authorities. Applying the Herfindahl–Hirschman Index (HHI) to this distribution yields a figure of approximately 4800. Under either the US Department of Justice, which treat markets above 2500 as ‘highly concentrated,’ or the CCI's own Combination Regulations, which apply heightened scrutiny to post-combination HHI above 2500, a market at 4800 sits well beyond any recognised concentration threshold.
This creates a challenge to the existing regime of competition law. Section 3 of the Act, targets anti-competitive agreements and generally requires evidence of coordination beyond mere parallel conduct. The Supreme Court in Rajasthan Cylinder & Containers v. Union of India has held that parallel pricing or parallel conduct alone does not establish an agreement without additional ‘plus factors’ evidencing concerted action. In oligopolistic markets, however, firms may reach the coordination-like outcomes through economic interdependence alone, leaving potentially anti-competitive effects outside the scope of traditional enforcement.
This position stands in contrast to the European Union, Article 102 of the Treaty on the Functioning of European Union, recognizes collective dominance where undertakings are connected by sufficient ‘economic links’ to present themselves, and act, as a collective entity. Additionally for merger-control, the General Court in Airtours plc v. Commission (Airtours Case), articulated the operative test for competition concerns in an oligopolistic interdependence test formulated three key elements: (i) sufficient market transparency for each firm to monitor the others' conduct; (ii) a credible mechanism deterring departure from the tacitly coordinated outcome; and (iii) the absence of an effective competitive counterweight from current or potential rivals or from countervailing buyer power. The Indian aviation satisfies the first two conditions through online and real time booking and repeated-game dynamics between two dominant carriers operating the same routes. It is the third condition which directly determined by the regulatory arrangements, because taxation and slot allocation principally determine whether a competitive counterweight can emerge at all.
The Competition Law Review Committee (2019) took into account, but did not recommend a separate collective-dominance framework, leaving Sections 3 and 4 as the sole instruments available even where the conditions of Air Tours case might otherwise be met. However, importing collective dominance into merger review risks over-enforcement in oligopolistic markets that remain workably competitive. Moreover, consolidation in aviation can generate efficiencies through integrated networks, improved fleet utilisation, and coordinated scheduling that a fragmented market may be unable to achieve. The theory of contestable markets recognises that such efficiencies can offset concerns arising from increased concentration where market conditions permit effective competitive discipline through the threat of entry. Yet, the difficulty persists as Indian aviation markets are not open to entry on credible terms. Additionally, the barriers that constrain entry arise largely from structural features of the industry.
Taxation and Regulatory Design as Structural Entry Barriers
The two mechanisms examined in this part predate, and operate independently of, any competitive conduct by IndiGo or Air India. Both are defensible in isolation on their own regulatory terms but their cumulative effect on market contestability is the central concern on fair regulation.
The constitutional intent underlying the GST was the creation of a unified national market through the elimination of cascading taxes and the seamless flow of input tax credits. The Constitution (One Hundred and First Amendment) Act 2016, inserting Article 366(12A), excluded 5 specified petroleum products inclusive of ATF, from the definition of GST, a position mirrored for the central levy in Section 9(2) of the Central Goods and Services Tax Act 2017.
The 55th GST Council meeting, maintaining the status quo, demonstrated that the exclusion is not an accidental omission but an actively reproduced institutional choice. In the interim, ATF attracts an 11% central excise duty alongside state VAT rates varying from 5%-25%, meaning that cost structures differ according to route geography. At the time the Protection of Interests in Aircraft Objects Act 2025 was enacted, ATF was estimated to constitute nearly 45% of an airline's operational costs.
The consequential legal point is that ATF's exclusion from GST breaks the input-tax-credit chain as airlines cannot claim input tax credit against largest cost input, reproducing the cascading-tax effect the GST regime was designed to eliminate. The formal burden applies equally to all carriers, but its economic incidence does not. A broken credit chain disproportionately increases fixed and semi-fixed costs for smaller and newer operators that lack the balance-sheet capacity to absorb uncredited input costs. Therefore, the exclusion preserves state fiscal autonomy over ATF while simultaneously raising the cost of market entry and narrowing the ability of smaller operators to contest incumbent carriers on comparable terms.
Furthermore, Indian airports allocate take-off and landing slots under rules broadly aligned with the IATA Worldwide Slot Guidelines. Airlines retain a slot if they use it at least 80% of the time in the corresponding season. While this rule helps carriers plan routes and make long-term investments, its effects at congested airports extend beyond operational efficiency. When Jet Airways collapsed in 2019 and Go First entered insolvency in 2023, the slots released at Delhi and Mumbai were largely absorbed by existing airlines rather than new entrants, strengthening incumbent carriers instead of promoting greater competition.
Comparatively, the European Union's own slot regime preserves historic precedence for existing holdings but reserves up to 50% of newly available slots in the pool for new entrants. Additionally, under Article 10 of Council Regulation, a deliberate competition safeguard embedded directly within the allocation mechanism itself. However, in India, slots that become available at congested airports are allocated largely through the same historic-precedence system that governs existing holdings. Although Indian slot-allocation policy contains provisions favoring new entrants, the allocation framework remains substantially anchored in grandfather rights. As a result, slot allocation operates as a de facto competition tool by influencing which carriers can grow and which cannot. Yet these decisions are administered by aviation authorities whose primary mandate is infrastructure management rather than competition regulation, and the Airports Economic Regulatory Authority Act 2008 does not confer a comparable competition-focused role in the allocation of airport slots.
Before the 42nd ICAO Assembly, India criticised grandfather slot rights at Heathrow as incompatible with the equal-opportunity principle in Article 44(f) of the Chicago Convention. Viewed in isolation, both arrangements are defensible on their own terms: ATF's exclusion reflects a legitimate, if contestable, concern for state fiscal autonomy, and historic-precedence slot allocation reflects a legitimate concern for operational predictability. Their cumulative effect, however, is to determine the conditions of market participation in Indian aviation before any carrier engages in conduct capable of attracting scrutiny.
Way Forward: Towards a Structural Instrument for Aviation Competition Policy
The response to such a regulatory gap is not the abandonment of conduct-based review, which remains the right tool for abuse, but the addition of an instrument capable of assessing structural conditions. The UK's Enterprise Act 2002 may offer a model where its market investigation power lets the competition authority act on structural features causing an “adverse effect on competition” without any finding of agreement or abuse. In 2009, the Competition Commission in its BAA Airports Market Investigation used this power against common ownership of London's airports, ordering divestiture of Gatwick, Stansted, and Edinburgh on structural grounds alone. Establishing the clearest precedent that infrastructure-driven competition harm is distinct from conduct-based harm, and addressable ex ante.
Fiscal federalism counsels a revenue-neutral compensation mechanism to bring ATF within GST without eroding state autonomy. Additionally, institutional competence flourishes in a coordination mechanism across the CCI, MoCA, AERA, and the GST Council, modelled on the Financial Stability and Development Council, with remedies implemented through each regulator's existing authority. Therefore, Indian competition policy needs an ex-ante, structure-focused instrument, coordinated rather than centralised, to reach concentration that regulatory design produces and conduct-based antitrust was never built to see.