Domestic air traffic touched new historic highs during November, so were air fares. Internationally, the upward trend of air fares is alarming and is reflected in Indian domestic fares. Air fares have arisen nearly 40 per cent from December 2022 levels and the festive season this year, normally characterised by increased levels of air travel, has shown a slowdown indicating the impact of high fares.

So why have the air fares gone up sharply? While the post-Covid demand for air travel has burgeoned, seat availability has been impacted by disrupted supply chains for aircraft and their components for the two major airliner manufacturers — Airbus and Boeing. High air fares are a reflection of increased demand which has its own dynamic but the lack of capacity with airlines is aiding the fare surge.

Gloomy outlook

The future doesn’t appear to be bright in this context. Cost of operations are going up and pressures to use costly sustainable fuels will push them up further. An India specific factor for high air fares in the future is an impending duopoly in its skies.

According to the Director General Civil Aviation’s (DGCA’s) site, during October, IndiGo had a 62.6 per cent share of the domestic market while Tata-owned airlines — Air Asia had 6.6 per cent, Air India (10.5 per cent) and Vistara (9.7 per cent), adding up to 26.8 per cent share.

Thus nearly 90 per cent of the total share is with IndiGo and Tata owned airlines.

Once the other players are edged out of the market, the resulting duopoly may push fares even higher.

Air passengers can hope that, in the best case scenario, the duopoly may bring a healthy competition and actually stabilise prices like in the case of Visa and Mastercard having co-existed for close to six decades.

Rail travel is not an alternative; it takes longer to travel by rail. Moreover, the AC First Class fares are generally higher than air fares, with dynamic pricing adding unreasonable premia closer to the date of travel or during festive seasons.

Regulating fares

There is always the hope that the government will intervene and rein in upward air fare trends. DGCA has no clear mandate regarding air fares but has intervened in the past. It had laid down minimum and maximum fares for various sectors in mid 2020 due to Covid which the Delhi High Court refused to interfere with saying it was “a stop gap arrangement”.

However, the Centre has submitted a statement before the Kerala High Court on November 10, that air fares are not regulated by the government. Its affidavit said that airlines are free to charge fares as per their operational viability, that dynamic pricing was a global practice, and that the government did not interfere in commercial aspects of airlines.

This must cheer the airline industry. The airlines have argued that if the DGCA regulates fares when they are high, then the regulator must compensate them during adverse market conditions (as during it did during Covid).

A department-related Parliamentary Standing Committee on Transport, Tourism and Culture has recently put forward recommendations to the Minister of Civil Aviation (MoCA) that it monitor and regulate flight booking portals and their profit based practices.

The Ministry could consider including such a provision in the new Draft Aircraft Bill 2023. Meanwhile, high air fares look inevitable.

The writer is retired Group Captain of IAF and a former COO of an airline