India's aviation sector underwent a dramatic transformation following the 1991 economic reforms, which triggered the first wave of private airlines after nearly four decades of state-controlled operations. According to reports from Business Standard, the Centre introduced the Air Taxi Scheme in 1991, allowing private operators to enter as non-scheduled carriers, with the Air Corporations Act repealed in 1994 formally opening the market to scheduled private airlines. Kapil Kaul, CEO of aviation consultancy firm CAPA India, noted that these reforms were "extremely remarkable because private airlines were allowed to operate," enabling world-class airlines like Jet Airways to emerge and demonstrating the quality of Indian private enterprise in aviation.
The initial liberalisation wave brought both opportunities and significant challenges for new entrants. As reported by Business Standard, the reforms triggered the entry of airlines including East-West Airlines, Damania Airways, and ModiLuft, which broke the state-run duopoly of Air India and Indian Airlines. However, most new airlines entered a business demanding far deeper financial resources than anticipated, with East-West shutting down after financial troubles following founder Thakiyudeen Wahid's assassination in 1995. Jet Airways and Sahara Airlines emerged as principal survivors, with Jet eventually building one of India's largest domestic and international networks.
The next major growth phase began in the early 2000s when flying became affordable for the middle class, marking a fundamental shift in India's aviation landscape. According to Business Standard, Captain G R Gopinath's Air Deccan introduced India's first successful low-cost carrier model and popularised promotional fares at just ₹1. Budget airlines such as SpiceJet, GoAir, and IndiGo expanded rapidly, forcing full-service carriers to lower fares and widening air travel accessibility. This period also witnessed important policy changes including airport privatisation with Delhi and Mumbai handed to private operators, and greenfield airports at Bengaluru and Hyderabad creating new infrastructure models.
Despite extraordinary growth, the aviation sector continues to face significant financial challenges that have persisted since liberalisation. As reported by Business Standard, airlines have lost about ₹25 billion since 2004, highlighting the ongoing struggle for profitability despite substantial market expansion. The industry's cost structure remains a major hurdle, with fuel and taxation accounting for a significant share of airline expenditure, while regulatory requirements, security obligations, and consumer protection requirements add indirect costs. Kaul from CAPA India emphasised that while regulatory entry requirements may be ₹50 crore, "surviving and competing in India today probably needs a capitalisation plan of around ₹10,000 crore."
The aviation sector has undergone significant consolidation in recent years, with Go First suspending operations in 2023 and Vistara being merged into Air India as the Tata Group consolidated its airline business. According to Business Standard, the return of Air India to the Tata Group in 2022 marked another landmark reform, ending nearly seven decades of state ownership. Recent performance data shows domestic air passenger traffic fell nearly 5% year-on-year in July 2026 to 1.2 crore passengers, with IndiGo retaining its dominant position at 67.4% market share carrying 80.82 lakh passengers. Air India Group held the second position with 24% share and 28.75 lakh passengers, while Akasa Air ranked third with 5.5% share and 6.65 lakh passengers. SpiceJet recorded a 1.6% market share with 1.87 lakh passengers, though its on-time performance of 34.5% was significantly lower than competitors.
