Lesson from India’s aviation market failure: The Invisible Hand is theory but regulation is a must

Last week was yet another education in how fragile markets truly are. When one private airline faltered, schedules collapsed, weddings were disrupted, families struggled, students fought to reach exam venues and businesses scrambled. A logistical nightmare became a dark reminder of something even more profound: markets, especially concentrated ones, can turn predatory in a crisis unless they’re regulated well.Let us look at the symptoms.

Airfares shot up overnight. A ticket that cost ₹6,000 a few days earlier was suddenly ₹40,000 or more. Hotels around airports quietly doubled rates as stranded passengers looked for overnight rooms.

It is all demand and supply, say market purists—as supply responds, markets will settle. Meanwhile, greed smells an opportunity in markets dominated by a few and a crisis becomes a bonanza for those who can raise prices and a nightmare for those who have no choice. Try telling someone who has missed an exam or a wedding that prices send signals and that intervention distorts markets.

Nobel laureate Milton Friedman’s famous quote, “There is no free lunch,” does not get more ironic. Who is feasting on the free lunch? In the real world, especially in sectors like aviation, markets do not resemble textbook models. They are rigid, capital-intensive and profoundly uncompetitive, with high entry barriers.

While you may start a dog escort service and compete with other platforms offering the same, starting an airline is an entirely different undertaking. Aircraft, pilots, engineers, ground crew and safety approvals require more than price spikes as incentives to trigger fresh supply. When supply is not contestable, price hikes are not signals, but penalties.