Airport Ownership Of Airlines Can Lead To Conflict Of Interest, New Duopoly

Chennai: The government's proposal to allow airport operators to own airlines can lead to conflicts of interest and a new duopoly instead of improving competition in the aviation sector, find experts. Instead, the government should address the structural challenges in the sector, ridden by heavy losses and high debt.

Airports are effectively monopoly infrastructure providers, and airlines depend on them for essential services such as slot allocations, boarding gates, parking facilities, ground handling and cargo handling. If an airport operator also owns an airline, it could become both a referee and a player in the market, said Samant Kumar Jha, Associate Director, India Ratings and Research.

Potential conflicts include preferential slot allocation and gate assignments, discriminatory airport charges and access to commercially sensitive data, which could disadvantage competing airlines.

To prevent such risks, Jha called for structural separation between airport and airline operations, independent boards and separate reporting structures. An independent agency should allocate slots to all airlines, supported by regulatory oversight and clear equal-access rules.

While allowing more players into the market could improve competition, permitting major airport operators such as Adani and GMR to own airlines may not necessarily deliver that outcome. Without adequate safeguards, the move could create a new duopoly, he cautioned.

IndiGo and Air India together account for around 90% of India's domestic aviation market. However, the consolidation of the industry reflects the repeated failure of airlines facing different financial and operational challenges.

Allowing airport operators to enter the airline business will not address the industry's fundamental challenges, including high operating costs, heavy debt, aircraft shortages, expensive aviation turbine fuel (ATF) and high taxes, he said.

High fuel costs remain a major burden, with ATF accounting for an estimated 35–45% of airline operating expenses. High taxes on aviation fuel, dollar-denominated aircraft procurement and maintenance costs, and rupee depreciation further squeeze margins.

Despite passenger traffic growing by 8–10% annually, intense competition and price-sensitive consumers limit airlines' ability to pass on higher costs. Dynamic pricing can support revenues, but airlines must balance higher fares against the risk of lower passenger occupancy.

The industry's debt burden is substantial. Air India's debt stood at around Rs 61,000–62,000 crore at the end of FY26, alongside consolidated losses of approximately Rs 22,000 crore. IndiGo had debt of around Rs 79,500–80,000 crore and reported a profit of approximately Rs 7,500 crore. Together, the airlines carried about Rs 1.41 lakh crore in debt.

Jha said airlines must prioritise profitability over aggressive expansion, maintain prudent debt levels and strengthen operational resilience. The government should review taxes on ATF and airport charges and create new MRO facilities.