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Government should not put a premium on inefficiency: Rahul Bhatia, co-founder, Indigo

Rahul Bhatia has dismissed criticism of his low-cost carrier's profits as 'silly' and cautioned the govt against condoning inefficiencies in the industry.

, ET Bureau|
Updated: Nov 23, 2011, 11.14 AM IST
Government should not put a premium on inefficiency: Rahul Bhatia, co-founder, Indigo
NEW DELHI: The co-founder of India’s most successful airline IndiGo has dismissed criticism of his low-cost carrier’s profits as “silly” and cautioned the government against condoning inefficiencies in the industry. “Saying that all of our money comes from sale and leaseback is silly,” Rahul Bhatia, 49, told ET in a rare interview.

Vijay Mallya, whose Kingfisher Airlines is struggling under a mountain of debt, said last week that every airline in India was in trouble and the ones making money were doing so by selling and leasing back aircraft and not from operations. Although he did not refer to IndiGo by name, it is the only airline making a profit.

But Bhatia said attributing all of IndiGo’s profits to accounting was “a wee bit for the birds”. “If sale and leaseback is the only formula to profitability, I don’t think we have the IP rights on this and everybody can do it and I think everybody does it.”

Mallya, who runs the UB Group with interests in liquor and beer, shuttered Kingfisher’s low-cost service saying it was unviable and cancelled flights on several routes. The liquor baron has been a strong advocate of allowing foreign airlines to invest in Indian carriers.

But Bhatia, whose career began at a travel agency founded by his father, said he is circumspect on the issue and urged the government to play fair.

“I feel strongly about it that just because certain constituents of the industry may have issues with their business, the government is prepared to go as far as changing policy. It almost sounds like we are sponsoring premium on inefficiency and I principally struggle with that.”

The government appears divided on how much foreign airlines should be allowed to invest in domestic carriers.

IndiGo Profits will Depend on Fuel Prices

The aviation ministry wants a 24% limit on investment by foreign airlines while the industry department is in favour of 26%. Permitting any investment at all will be a change from the current policy which bars any investment.

Bhatia, who studied engineering in Canada, set up travel services provider Inter-Globe Enterprises in 1989 and launched IndiGo in 2005 with Rakesh Gangwal, a former chief executive of US Airways. The low-cost carrier has gained a reputation for punctuality and last year the privatelyheld airline made a profit of about .`600 crore, disclosures to the aviation regulator show.

But he is not sure whether IndiGo will cross last year’s mark and said much will depend on fuel prices. “What we know is that we will end the year making money. All the profit doesn’t come from sale and leaseback. Year to date, we should be profitable.”

Bhatia also disagreed with rivals who say there is virtually no difference between a low-cost airline and a full-service carrier. “I can show you results of airlines of the past few years and it doesn’t take rocket science to understand that the cost structure varies dramatically. When people say there is no cost difference, the maths speaks for itself,” he said.

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