29.7 C
New Delhi
Wednesday 3 June 2020

Airfares capped for an unprecedented three months

This is the first time that the Indian government has capped airfares for such a long duration; during natural calamities, it lasts a few days

in

on

Civil Aviation Minister Hardeep Singh Puri said today the government would fix airfares with both an upper and lower limit for all domestic flights for three months after the air services resume on 25 May, following a nearly two-month-long nationwide lockdown. The government had grounded the entire airline fleet for this duration.

The government has introduced the upper limit in airfares to prevent any sharp upward spike in prices due to pent up demand. The lower limit of airfares, on the other hand, will help ensure the airlines do not turn unviable businesses, the civil aviation minister said on 21 May.

If the intrinsic demand is muted, then the minimum fare will help in general and maximum fare will not be that relevant. However when demand is muted and the minimum fare is higher than what it would otherwise have been, the weakest or least attractive player suffers the most as they cannot use pricing as a tool to steal market share

Union Civil Aviation Minister Hardeep Singh Puri

This is the first time that the Indian government has capped airfares for such a long duration. The government would otherwise restrict such measures to no more than a few days during calamities like flood, a source said. “The government has not conveyed this decision to us yet,” he said.

In his second press conference since yesterday, Puri said, announcing the resumption of domestic flight services from next week, flight operations between all cities would resume the next week. Every flight will carry only one-third its capacity approved during the summer schedule of 2020. “The number of flights will gradually be increased (after 24 August),” Puri said.

The government has created seven major airfare sections or zones, based on the distance and time taken to cover the distance.

The government has classified flights between cities as under:

  1. Flight duration under 40 min: Section 1
  2. Flight duration under 40-60 min: Section 2
  3. Flight duration 60-90 min: Section 3
  4. Cities 90-120 min apart: Section 4
  5. Cities 120-150 min apart: Section 5
  6. Destinations between 150 min and 180 min: Section 6
  7. Destinations between 180 min and 210 min: Section 7

Only one-third of the total flights approved during the summer schedule will fly the skies during the upcoming period.

Puri said the government would regulate airfares for a period of three months. “With the capacity falling from 100% to 30%, fares could have sky rocketed. Once we exit the three month period (on 25 August), we can have a market based system or a pre-covid kind of arrangement,” Puri added.

Examples of airfares

Explaining the mechanism of a lower and upper airfares bracket on various routes, Puri said that the move would imply that the lowest fare between Delhi and Mumbai, the busiest route in the country, will be capped at Rs 3,500 and Rs 10,000 at the higher end.

Airlines will have to keep 40% of the total seats available at less than the median price, aviation secretary Pradeep Singh Kharola said.

Though the number of airlines and air routes increase with the resumption of flight operations, after an initial period of high demand, an elongated period of slump will follow due to COVID-19-related implications, two senior airline officials said.

“If the intrinsic demand is muted, then the minimum fare will help in general and maximum fare will not be that relevant. However when demand is muted and the minimum fare is higher than what it would otherwise have been, the weakest or least attractive player suffers the most as they cannot use pricing as a tool to steal market share,” said a senior official at a no-frill carrier.

“Then the demand goes to the stronger players offering that fare, and the least attractive players gets the leftovers and suffers. If demand is high, then the minimum fare does not matter much. But setting a cap will create shortages like we see for trains,” the official added.

Challenges before the civil aviation sector

Creating enough demand for flights will be a challenge, with COVID-19 outbreak muting travel demand. “Even if we operate these flights, we need to make sure there is enough demand, as we can’t operate empty planes,” said another senior airline official.

Spokespersons of airlines like IndiGio, SpiceJet, Vistara, GoAir, AirAsia India and Air India didn’t comment on the government’s decision to cap fares.

“Technically, the government does not regulate fares. Fares were deregulated under the Aircraft Act in the 90s. However, the Ministry of Civil Aviation, through DGCA (Directorate General of Civil Aviation), does monitor pricing levels and, at times, has intervened when fares have spiked very high,” said Petrushka Dasgupta, Partner, IndusLaw.

“However, as a part of their guidelines for restart of Domestic Operations from 25th March onwards, they have indicated that they will set ‘floor and ceiling’ levels for fares for the initial start up phase, so that airlines don’t over price on certain routes or engage in predatory pricing,” Dasgupta added.

1,209,635FansLike
180,029FollowersFollow
513,209SubscribersSubscribe

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

For fearless journalism

%d bloggers like this: