Conflict of interest if airport operators own airlines: IndiGo MD

IndiGo co-founder and chief executive Rahul Bhatia on Thursday opposed any potential move to allow airport operators to own airlines, saying such a policy would create a “huge conflict of interest” and ultimately harm consumers.

“All I can say is that if the news has any value, it has no global precedent because it typically reflects a huge conflict of interest,” Bhatia said during IndiGo’s post-earnings analyst call. he said.

“And that will be against the interests of consumers after a while… Let’s see how this develops and then we can take a more careful view in the future,” he said.

New Delhi is reviewing existing rules that limit an airport operator from owning more than a 10% stake in a local carrier, Bloomberg reported on Wednesday.

Fuel shock pushes IndiGo into the red

On Thursday, IndiGo, operated by InterGlobe Aviation, the country’s largest airline, reported its first quarterly loss in four years. Higher fuel costs, ₹Consolidated loss of 238 crore during April-June ₹2176.3 crore profit a year ago. Fuel costs increased by 86 percent on an annual basis ₹10,832.9 crore.

However, consolidated revenue from operations increased by 20% year-on-year. ₹24,584.1 crore, reflecting resilient travel demand and strong ticket prices even as costs rise.

IndiGo’s earnings fell below analyst expectations: Profit forecast in Bloomberg’s survey of eight analysts ₹1,430 crore.

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

CASK or cost per available seat-kilometer is of concern to investors ₹5.71 was more than the airline’s current revenue per seat-kilometer (RASK). ₹5.66. This was the second quarter in which IndiGo lost money on every seat; This is an important metric used to gauge the financial health of airlines. But unlike the fourth quarter, when foreign exchange losses caused the airline to post a loss, this time the losses were driven by rising jet fuel prices.

“The higher cost per available seat kilometer is driven primarily by fuel costs and not a structural disruption in the business. Excluding fuel and foreign exchange, CASK was only up about 11% year-on-year, which was broadly in line with inflation and offset by a roughly 20% increase in airfares,” said Jainam Shah, aviation analyst at brokerage Equirus Securities.

“We expect losses to continue in the second quarter due to seasonality and rising fuel costs, but profitability should return in the second half. If IndiGo can maintain high fares even after fuel prices normalize, FY2028 and FY2029 could be significantly more profitable,” Shah said.

Focus on cost control

An additional concern is that the airline’s capacity is growing rapidly, outpacing passenger growth: IndiGo’s capacity increased by 3%, while passenger traffic increased by 1.4%.

“The first quarter was shaped by a volatile operating environment in the Middle East, where rising fuel costs and network-related constraints impacted profitability,” Bhatia said.

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

Bhatia, who has been managing the airline on an interim basis since Pieter Elbers left his post in March, will hand over the job to new CEO Willie Walsh in the first week of August.

Analysts are waiting to see what changes Walsh will bring.

“We expect meaningful positive triggers to emerge in the second half of the year, when the new CEO takes over and there is greater clarity on the winter flight schedule, geopolitical environment and aircraft deliveries,” said Karan Khanna, aviation analyst at brokerage firm Ambit Capital.

To control costs, Chief Financial Officer Gaurav Negi said during the post-results call that the airline had deferred annual salary increases for senior executives and would reconsider the decision in the next six months.

Conflicts in West Asia drive cost growth

Another analyst said the quarterly loss reflected the extraordinary rise in fuel costs rather than any deterioration in travel demand.

“The key drag on 1QFY27 earnings was the sharp increase in fuel costs, which were well above both our and the Street’s expectations, despite the fuel surcharge,” Equirus’ Shah said.

“Excluding a temporary fuel shock, traffic demand and ticket prices have remained healthy, suggesting the airline’s underlying business remains strong,” he said.

Much of the pressure came from conflict in West Asia.

The closure of Iranian airspace has resulted in flights between India and Europe taking longer routes, increasing fuel consumption, crew duty hours and other operating costs.

Flights to many destinations in the Gulf and Central Asia were also disrupted for most of the quarter.

At the same time, aviation turbine fuel (ATF), airlines’ biggest expense, remained high after prices nearly doubled between late February and May before falling towards the end of June. However, with the re-emergence of tension in West Asia, prices are rising again.