Conflict of interest if airport operators own airlines: IndiGo MD

IndiGo co-founder and managing director Rahul Bhatia on Thursday opposed any potential move to allow airport operators to own airlines, saying such a policy would create a "massive conflict of interest" and ultimately hurt consumers.

"All I can say is that if the news has any merit, it has no global precedent because typically it reflects a massive conflict of interest," Bhatia said during IndiGo's post-earnings analyst call.

"And over a period of time it would be against the interest of consumers…Let's see how this develops and then we can take a considered view in the future," he said.

A Bloomberg report on Wednesday said New Delhi is reviewing the current rules that limit an airport operator from owning more than a 10% stake in a homegrown carrier.

On Thursday, InterGlobe Aviation-run IndiGo, the country’s largest airline, reported its first Q1 loss in four years. Higher fuel costs led to a ₹238 crore consolidated loss in the April-June period, compared with a ₹2176.3 crore profit a year ago. Fuel costs surged 86% year-on-year to ₹10,832.9 crore.

Consolidated revenue from operations, however, rose 20% year-on-year to ₹24,584.1 crore, reflecting resilient travel demand and stronger ticket prices, even as costs surged.

IndiGo’s earnings fell short of analyst expectations: a Bloomberg poll of eight analysts had estimated a profit of ₹1,430 crore.

A second straight loss after the country’s largest airline reported a loss in January-March, is especially striking because the April-June quarter is a seasonally strong quarter for the carrier.

Worryingly for investors, CASK, or cost per available seat-kilometre, at ₹5.71, was more than the airline’s revenue per available seat-kilometre (RASK), which was ₹5.66. This is the second straight quarter IndiGo has lost money on every seat – a key metric which is used to gauge the financial health of airlines. However, unlike in the fourth quarter, when forex losses caused the airline to report a loss, this time losses were due to surging jet fuel prices.

“The higher cost per available seat kilometre is being driven primarily by fuel costs, not a structural deterioration in the business. Excluding fuel and foreign exchange, CASK rose only about 11% year-on-year, which is broadly in line with inflation and has been offset by roughly a 20% increase in air fares,” said Jainam Shah, aviation analyst at brokerage firm, Equirus Securities.

“We expect losses to continue in the second quarter because of seasonality and elevated fuel costs, but profitability should return in the second half. If IndiGo is able to sustain the higher fares even after fuel prices normalise, FY2028 and FY2029 could be significantly more profitable,” Shah said.

An added worry is that the airline’s capacity is growing at a fast clip, outpacing passenger growth: IndiGo’s capacity increased by 3%, while passenger traffic grew 1.4%.

"The first quarter was shaped by a volatile operating environment, with elevated fuel costs and network-related constraints in the Middle East impacting profitability," said Bhatia.

"Demand remained healthy and our revenue performance improved year-on-year, supported by improved yields," he said.

Bhatia, who has been leading the airline on an interim basis since Pieter Elbers stepped down in March, will hand over charge to incoming chief executive Willie Walsh in the first week of August.