DGCA to end the air fare caps on domestic flights

The Directorate General of Civil Aviation has decided to remove the ongoing fare caps on the tickets of domestic airlines from August 31.

“After review of the current status of Scheduled Domestic Operations viz-a-viz passenger demand for air travel in terms of the purpose specified in the initial Order No. 02/2020 dated 21.05.2020, it has been decided to remove the fare bands notified from time to time regarding airfares with effect from 31.08.2022,” the DGCA said in a notification.

The airlines and airport operators must, however, ensure that the guidelines to contain the spread of COVID-19 are strictly adhered to and COVID-appropriate behaviour is strictly enforced by them during travel, it added.

The government had in June started discussions with airlines about removing price bands for passenger fares. The talks started after some airlines renewed their demand to remove the pricing caps, claiming the regulation is a hurdle to the full-fledged recovery in domestic air traffic.

In May, aviation minister Jyotiraditya Scindia said that fare capping was necessary to protect passengers from exorbitant fares.

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“I have an environment where ATF prices are still very high, I want to protect the passengers and also the airlines… I have to ensure that the environment is stable and I need multiple airlines to proliferate in my country and then I need to create that arena where multiple airlines can operate,” Scindia had said.

In May, aviation minister Jyotiraditya Scindia said that fare capping was necessary to protect passengers from exorbitant fares.

Discussions on removing the price bands for domestic airfares have resurfaced after many airlines renewed their demand to remove the pricing caps, saying that over-regulation is a hurdle to the full-fledged recovery of domestic air traffic. Airlines in India are also hoping that ATF will be brought under the goods and services tax regime, to lower their burden.

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Vistara CEO Vinod Kannan had on June 19 said that he would be happy if the lower and upper limits on airfares were increased but the best solution would be for the airlines to have absolute freedom on airfares.

Fare caps are currently applicable on a rolling basis for a 15-day cycle, which means airlines are free to set prices of tickets beyond 15 days from the date of booking.

It has become difficult for airlines to maintain operating efficiencies under the current fare caps, given that ATF accounts for 30-35% of operational costs.

For example, airlines currently cannot charge a passenger less than INR 2,900 (excluding GST) and more than INR 8,800 (excluding GST) for domestic flights of less than 40 minutes.

Experts said it has become difficult for airlines to maintain operating efficiencies under the current fare caps, given that ATF accounts for 30-35% of operational costs.

Jet fuel prices have been coming down during the last few weeks after jumping to record levels, primarily due to the Russia-Ukraine war that began on 24 February.

The Aviation Ministry had imposed lower and upper limits on domestic airfares based on flight duration when services resumed on May 25, 2020, after a two-month lockdown due to the pandemic.

Airlines in India are also hoping that ATF will be brought under the goods and services tax regime, to lower their burden.

The lower end of the fare band was put in place to help airlines that had been struggling financially due to travel restrictions. The upper limit was imposed so that passengers are not charged huge amounts when the demand for seats is high.

The decision comes when the summer travel season has ended and the travel industry has entered a lean season.

Airlines have also seen a drop in passenger demand as compared to the levels seen between April and June because of the seasonality in demand as well as steep airfares due to high aviation turbine fuel and oil prices. During such a time, airlines say they like to attract passengers with lower airfares to fill their aircraft but were constrained by the airfare bands.

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