InterGlobe's interest in Virgin Australia: A peek into Rahul Bhatia's global ambitions

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InterGlobe Enterprises' interest in Virgin Australia does not have anything to do with IndiGo. It is all about Rahul Bhatia, the airline's co-founder.

This is the first time Bhatia has given a clue to his global ambitions. Surely, IndiGo has charted out an elaborate plan to expand overseas, including in Europe. But, that has been pushed back because of the COVID-19 disruption.

Just like a canny entrepreneur, the Delhi-based businessman has also spotted the opportunity in the present crisis. Globally, airlines have been collapsing. It is not just Virgin Australia. Others who have filed for bankruptcy include Flybe, Air Mauritius and South African Airways.

In fact, in the list of suitors for Virgin Australia, Bhatia is perhaps the only aviation entrepreneur.

But, what has made Bhatia eye Virgin Australia, which was the second-biggest carrier in the country after Qantas Airways?

The market

As an aviation market, Australia makes for a sweet proposition.

Indians make up for 2 percent of Australia's population. In 2020, 5 lakh Indians are expected to visit Australia, also an education hub that has been favoured by students. The traffic is expected to double by 2025, among the highest for any country.

Bhatia could well leverage this traffic. Virgin Australia had a Sydney-Singapore flight, and that can be fed by IndiGo's operations to Singapore.

The domestic traffic is robust, with the Melbourne-Sydney route ranked as the fifth-busiest in the world, Mumbai-New Delhi being the third busiest.

The local Australian aviation market is also one of duopoly. There is Qantas, and, then, there is Virgin Australia. That will be something that Bhatia will like as, till now, he is used to the stiff competition, often cut-throat, in India. While IndiGo does have near 50 percent share of the local market, it does compete intensely with peers like SpiceJet and GoAir.

The Australian market is different. Peter Harbison, the chairman of aviation advisory firm CAPA, calls Australia 'something of an oasis in aviation.'

The airline

Virgin Australia began as Virgin Blue, when it started operations in 2000. Rebranding happened in 2011, when it got its present name.

Along with a new name, the airline also upped its offering, including new menu options.

If successful, will Bhatia bring back the low-cost legacy of Virgin Australia? After all, in IndiGo, he has mastered the art of keeping a tight control over costs. It may probably be the right medicine for Virgin, which has otherwise been suffering losses and has debts of over $4 billion.

But, then, there is a Goliath in Qantas. Many entrepreneurs, including Tony Fernandes of AirAsia and airlines like Singapore Airlines, have tried breaking into the market. They all failed.

Qantas though has been making healthy profits. The biggest airline in the country, reported profits of about $900 million in 2019.

And it is a tough competitor. Even as Virgin Australia asked for a lifeline from the Australian government, Qantas said it has enough to survive by its own till 2021.

Similar to IndiGo, which also has a big cash reserve as a cushion?

The price

Reports say that the final price for Virgin Australia could be about $2 billion.

There is little information on InterGlobe's finances. IndiGo may have about Rs 9,500 crore in cash, but Bhatia wouldn't want to make the airline party in the deal, given the crunch in the Indian market. Flights have been suspended since March.

Apart from IndiGo, in which it has about 38 percent stake, InterGlobe also has a hospitality business (in partnership with Accor).

Bhatia is among the richest entrepreneurs in the country, with the Forbes Rich List putting his wealth at $3.4 billion. The entrepreneur may well bring in additional investors to partner in his bid for Virgin Australia.

An acquisition is a foreign territory for the veteran entrepreneur. IndiGo, unlike some of its peers, has grown organically.

Now it is probably the best time for Bhatia to change tack.