There is talk that the Centre may be weighing policy relaxations that could allow airport operators to own airlines, with preliminary internal discussions being underway as per sources. While nothing is concrete yet, such a move could pave the way for airport operators like the Adani group and the GMR group to enter the airline business.Earlier, there were indications that initial discussions on cross-ownership in airport operators and airlines followed the Adani group’s request for an enabling policy environment, but Adani Enterprises on Friday (July 24) denied that it was evaluating any proposal to enter the airline business.The government, on its part, has been calling for more airlines in the Indian skies, given the duopoly of IndiGo and the Air India group, which have a cumulative domestic market share of over 90%. The objective of the discussions to allow airport operators to also run airlines is to foster more competition in the sector, sources said.Currently, there are stringent restrictions on airport operators having stakes in airlines. For instance, operators of India’s largest airports at Delhi (GMR has 74% stake) and Mumbai (Adani group has 74%) are barred from owning more than 10% in a scheduled carrier. The converse is also true, with strict limits on airlines’ ownership in airports.But a move to allow airport operators to run airlines is bound to face resistance from existing carriers and other aviation stakeholders. IndiGo Managing Director Rahul Bhatia on Thursday said that any such move will create a “massive conflict of interest” and will be against the interest of consumers.Globally, aviation and competition regulators have viewed this type of vertical integration with abundant caution, as airports are natural monopolies and provide critical infrastructure for the aviation ecosystem. This implies that they must facilitate fair market access to carriers without prejudice. If an airport also owns an airline, there are bound to be questions about competition, fair play and non-discriminatory market access.“One can see where the instinct (of allowing airport operators to own airlines) comes from. India’s entry problem is capital. New airlines… cannot afford to lose money for seven years against a carrier with two-thirds of the market. Adani and GMR can,” said Anupam Manur, professor of economics at the Takshashila Institution.Story continues below this ad“There is even an efficiency argument: airport profits increasingly come from footfall, so an airport that owns an airline wants more flights at lower fares, not fewer at higher ones. But, obviously problems abound — both economically and ethically,” he told The Indian Express. The Mumbai airport is operated by the Adani group, which has 74% stake. Photo: Wikimedia CommonsThe most obvious concern is conflict of interest in important decisions like slot allocation to airlines. If the airport operator is the slot coordinator, there will be an inherent conflict if its own airline was competing with others for prime slots. Even if discrimination doesn’t actually occur, experts believe that it still will be a concern for stakeholders. Generally, anti-trust policies focus on maintaining a level-playing field and not just on instances of actual discrimination.Airlines depend on airports for critical operational infrastructure such as parking bays, check-in counters, aircraft stands, boarding gates, and ground handling facilities, among others. As an airport usually controls them, they are expected to be neutral infrastructure and service providers. Any apparent and meaningful difference on these counts between airlines, even owing to differences in commercial agreements, could lead to allegations of anti-competitive practices. So, regulatory confidence in airport neutrality is particularly important to prevent an environment of even subtle forms of preferences or discrimination.Global trendsAviation and competition regulators worldwide have largely preferred keeping airports and airlines operationally independent. Even in the few cases of common ownership, like in the major hub airports in West Asia, the government ultimately owns both the airlines and the airports. Dubai airport and Emirates are government-owned but are separate corporate entities. So are Etihad and the Abu Dhabi airport, and Qatar Airways and Doha airport. Story continues below this adSimilarly, Singapore’s Changi Airport and Singapore Airlines are linked through the Singapore government investment ecosystem, but have distinct management structures and regulatory oversight.Moreover, all these examples involve large hub airports in territories that have virtually non-existent domestic air traffic, and primarily operate as pure-play international airports serving as hubs for airlines owned by the respective governments as part of an integrated hub development strategy. Domestic airline competition is also absent.Also read | ‘Massive conflict of interest’ if airport operators are allowed to run airlines: IndiGo’ Rahul BhatiaBut in India, all airlines — except for regional carrier Alliance Air — are in the private sector, and a growing number of major airports are being operated by private sector operators and not the government-owned Airports Authority of India. That makes India’s aviation market more like Europe than West Asian states or Singapore.Competition rules in the European Union are among the most stringent in the world, with strict oversight and enforcement. It also mandates that the airport slot coordinating agencies must be functionally independent from any interested party. In the US, most major airports are owned by city and county governments, port authorities, and independent airport authorities. They receive federal funding, for which they must comply with Federal Aviation Administration grant assurances that prohibit them from discriminating among airlines and effectively prevent income from airport operations to be invested in airlines.Necessary safeguardsStory continues below this adIf India does allow airport operators or entities affiliated to them to also run an airline, experts say that a watertight regulatory and competition oversight system is required.NewsletterFollow our daily newsletter so you never miss anything important. On Wednesday, we answer readers' questions.SubscribeSafeguards should include structural separation between airport and airline businesses, independent boards and management teams for the airport operator and the airline, strict protection of carriers’ commercially sensitive information, independent airport slot coordinators, and transparent gate and terminal allocation policies.There also needs to be enhanced oversight by regulators, including the Airports Economic Regulatory Authority of India, the Directorate General of Civil Aviation, and the Competition Commission of India.