As of August 31, India will remove fare caps imposed on domestic airlines during the pandemic.The move will lead to a lifting of restrictions on ticket prices and allow airlines to charge fares as per “demand and supply dynamics”.
According to analysts, this could lead to fares moving up “even higher” in peak season; while during the leaner period, they will be scaled down. The upcoming festival season, beginning last week of September-December could see fare prices surge in some of the “popular routes”; while deep discounting across leaner routes will be another factor to watch out for.
Domestic airfares, booking agents say, are already 50-100 per cent higher than pre-Covid levels in some of the key sectors. “After review of the current status of scheduled domestic operations viz-a-viz passenger demand for air travel....it has been decided to remove the fare bands notified with effect from 31.08.2022,” the Ministry of Civil Aviation said in a notification on Wednesday.
The Centre on May 25, 2020, regulated fares by imposing a minimum and maximum band based on the flight’s duration to prevent ticket prices from spiking due to pent-up demand as it was relaxing restrictions on air travel. The fare bands are applicable for tickets purchased for travel within 15 days.
According to Jyotiraditya Scindia, the Union Minister for Civil Aviation, the decision to remove airfare caps was taken after careful analysis of daily demand and prices of air turbine fuel. “Stabilisation has set in and we are certain that the sector is poised for growth in domestic traffic in the near future,” he said taking to the micro-blogging site Twitter.
June air traffic data
Around 1.05 people travelled by air in June, down by 9 per cent month-on-month. In May, 1.15 crore people had travelled, DGCA’s last monthly report (June) said. For the first six months of the year (January-June), over 5.72 crore people travelled, a y-o-y increase of 67 per cent. IndiGo carried 59.83 lakh passengers in June and had a 56.9 per cent share of the domestic market.
Airlines lobbied hard
Domestic carriers have been pitching for the removal of the fare caps for quite some time. IndiGo, the country’s largest airline in April said, the Centre could stimulate the Indian aviation sector by doing away with fare caps. It had pointed out the “constantly rising ATF costs” and recovery of the Indian aviation sector, as two key parameters for the government to monitor and take a decision that would “expedite recovery”.
For the April-June quarter, the airlines said fuel prices rose 95.5 per cent y-o-y. In June, the government began discussions on the removal of price bands, a MoCA official said. “We are strongly supportive of this move as free market economics is are good forour customers and investors,” IndiGo said in a statement.
However, airlines with weaker balance sheet or those low on cash could now be more “susceptible to fare wars” leading to further pressure on their costs, an analyst said requesting anonymity
Price hike in popular routes
According to Indiver Rastogi, President and Group Head-Global Business Travel, Thomas Cook (India) Ltd, the announcement will allow airlines to price fares “solely based on demand-supply of routes”.
“Airlines will be able to offer the benefit of lower pricing to customers on sectors or routes where flight loads are comparatively lower. Certain flight routes, for instance, metros and Bengaluru, are likely to witness surge pricing,” he told BusinessLine.
The impact “is likely” to be felt in the upcoming festive season. According to Bharatt Malik, Senior VP, Flights, Yatra.com, the move will rationalise demand and supply. And it is likely to help the industry gain momentum in terms of growth and scalability. “The fares will now be regulated by the market and consumers will be presented with competitive prices, hence normalising them,” he said.
According to Mahesh Reddy, Director General, Infrastructure Industry & Logistics Federation of India (IILFI), it is a “forward looking step” that will help airlines scale up operations to pre-Covid levels; and bring back more passengers to airlines. “With airlines scaling up operations and there being more flights on routes, fares will get stabilised too,” he said.