The year 2006 marked a turning point for the aviation sector in more ways than one. It was the year IndiGo took to the skies, promising affordable air travel with a no-frills model that would eventually redefine the industry. It was also the year Delhi and Mumbai airports were privatised under the Operation, Management, and Development Agreement (OMDA), which contained an important safeguard. Airport operators were barred from owning more than a 10% stake in an airline, lest they use their control over airport infrastructure to favour their own carrier.
Twenty years later, the government is considering relaxing that very clause.
At one level, the proposal appears controversial. IndiGo promoter Rahul Bhatia has warned that allowing airport operators to own airlines would create a massive conflict of interest and eventually hurt consumers. Akasa Air CEO Vinay Dube, on the other hand, has said that the country needs more competition and more investors, while expressing confidence that adequate safeguards can be built into the system. The immediate debate is, therefore, about whether airport operators such as the Adani Group or GMR Airports should be allowed to own airlines.
But the larger story lies elsewhere. It is in how dramatically the aviation sector has changed since 2006 and how regulation is now struggling to catch up with that change.
When the OMDA was drafted, there were no shortage of airlines. Jet Airways dominated the market. Air India and Indian Airlines were present. Kingfisher Airlines was preparing for take-off. Air Deccan had made low-cost flying fashionable. SpiceJet and GoAir were expanding. Paramount Airways and Sahara Airlines were in the market. Competition was plentiful. The government’s concern was understandable. It wanted to ensure that a company controlling an airport did not also control an airline, thereby creating the possibility of discrimination in slot allocation, airport charges, or terminal access.
The market, however, evolved very differently from what the government or regulators had imagined.
Over the next two decades, aviation became a graveyard of once-prominent brands. Jet Airways collapsed. Kingfisher disappeared. Air Deccan vanished through mergers. Go First shut down. Vistara and AirAsia India were folded into Air India. What survived was not a monopoly born of regulatory protection but a market where relentless competition rewarded the most efficient players and punished the rest.
Today, IndiGo alone carries about two-thirds of domestic passengers, while the Air India group has emerged as the second dominant player. Together they account for almost 90% of domestic capacity. Ironically, the government is now considering relaxing a rule framed to prevent excessive concentration because it believes the bigger problem is the lack of enough competitors.
This is where the aviation debate begins to resemble another sector that has undergone a similar transformation.
In the early years of telecom liberalisation, most circles had 10 or more operators. The government and the regulator worried about spectrum concentration and market dominance. Then economics intervened. Fierce price wars, high capital expenditure, and mounting debt triggered consolidation. Today, there are three private telecom operators. Yet the policy conversation is no longer about creating 10 operators again. It is about ensuring that the three remaining players remain financially healthy enough to keep investing in networks while competing vigorously.
Aviation presents a similar dilemma, although the government’s response is different. Instead of accepting consolidation as the natural outcome of market forces, it is exploring ways to encourage new entrants by widening the pool of potential promoters. Relaxing cross-holding restrictions for airport operators is one such idea. Whether it succeeds is another matter. Running an airport and running an airline are very different businesses. Aircraft shortages, wafer-thin margins, and volatile fuel prices have defeated far more experienced airline promoters than infrastructure companies.
Yet dismissing the proposal simply because it overturns a 20-year-old safeguard would also be missing the point.
The real question is whether a regulation framed for one market remains appropriate for a fundamentally different market. The concerns that shaped the OMDA have not disappeared. Airport operators owning airlines would undoubtedly require robust oversight. But it is equally true that slot allocation, security, and operational approvals today involve multiple agencies, unlike two decades ago. Regulatory institutions themselves have evolved.
This is a dilemma that regulators across sectors increasingly confront. Rules framed to solve yesterday’s problem often become constraints when markets change. The objective of regulation remains the same — protecting competition and consumers — but the instruments may need periodic recalibration.
That is why the debate should not be reduced to whether Adani or GMR should own an airline. Nor should it become a contest between the concerns expressed by IndiGo and the optimism articulated by Akasa Air. Those are immediate positions shaped by commercial interests.
The bigger policy question is whether there’s a need to preserve competition by freezing regulations in time or by adapting them to changing market realities. Twenty years ago, the fear was that allowing airport operators to own airlines might create excessive concentration. Today, the fear is that too few airlines may constrain competition and capacity.
History has an interesting way of challenging assumptions. The monopoly regulators feared never emerged. Instead, market forces produced a duopoly. The government’s latest proposal, perhaps, is an acknowledgement that regulation, like markets, cannot remain frozen in 2006.