INDIA: The civil aviation ministry has decided to remove price caps for the domestic aviation industry from August 31, giving airlines flexibility over passenger fares.
Although airlines are expected to continue with current fare levels due to high fuel prices, there may be discounts on routes with low demand and flights with poor load, according to airline management.
Capacity and fare restrictions were introduced in May 2020 following the resumption of air travel following a nationwide lockdown. The government allowed 100% capacity utilization in October last year but continued to regulate prices citing an unfavourable cost environment.
“After reviewing the current status of scheduled domestic service keeping in view passenger demand for air transport… it has been decided to remove the fare bands notified from time to time in respect of tickets with effect from August 31, 2022,” Satyendra Kumar Mishra, Joint Secretary, Ministry of Civil Aviation, he said in his Wednesday order.
Under current policy, the fare cap applies to tickets sold for 0-15 days on an ongoing basis. Airlines are free to decide on tariffs for journeys longer than fifteen days.
According to aviation management, airlines will have the flexibility to set prices based on demand and supply dynamics after the tariffs are abolished. The increase in capacity and the price of fuel will also determine the price of the ticket.
“A reduction in fares may not result in a large increase in freight. Amid the current fuel environment, tariffs may remain similar to current levels,” said an industry executive.
Market leader IndiGo, which had been pushing for the removal of fare bands, welcomed the decision. “We strongly support this move because free market economics are good for both our customers and investors,” the airline said in a statement.
Travel companies believe the government’s announcement will give a boost to air travel as airlines will have the freedom to set ticket prices. Aloke Bajpai, co-founder and group CEO of ixigo, said fares should gradually come down on routes with softer demand.
“Airlines will be able to offer the benefit of lower prices to customers in sectors/routes where the flight load is relatively low. Some flight routes – inter-metro, for example – are likely to see price spikes,” said Indiver Rastogi, president and head (global trade routes), Thomas Cook India and SOTC.