Removal of airfare caps ignites a price war among the airlines to attract fliers

AIRLINES

The Indian aviation sector is witnessing one of the toughest competition. The removal of airfare caps by the government has ignited a price war among the airlines to attract fliers.

Just a few days after the government did away with fare caps, domestic airlines Akasa Air, IndiGo, Air Asia, GoFirst and Vistara have cut prices. Lower prices are not only a reflection of airlines looking to grab or retain market share, but are a product of competition, demand, supply, costs, and potential cargo revenues.

A close look at airfare disclosed that a ticket from Mumbai to Ahmedabad is costing INR 1,399 on Go First and INR 1,497 on new entrant Akasa Air for a journey on September 9. IndiGo, the largest domestic airline, is offering tickets on the same route for INR 1,609, reported IANS.

Removal of airfare caps ignites a price war among the airlines to attract fliers

Similar is the case on the Mumbai-Bengaluru route with tickets available in the range of INR 2,000 to INR 2,200. While Akasa Air is offering a ticket for INR 1,997 for a journey on September 9, a ticket on IndiGo is available for INR 2,208.

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The price war among Indian airlines was expected following the removal of the airfare cap by the Ministry of Civil Aviation from August 31 onwards.

Industry experts said that high competition among the airlines may lead to benefits for the fliers and many airlines may offer discounts as per demand. Interestingly, the prices have slipped mostly on the routes on which the newly-launched Akasa Air has started its operations.

The fare caps were removed with effect from August 31 this year.

An expert said the Aviation Ministry’s move has given the flexibility to the airlines in deciding airfares as they can now charge as per their policies. The entry of Akasa Air has increased competition in the aviation sector. To attract fliers, some airlines have already started offering tickets at lower rates.

The fare caps were removed with effect from August 31 this year. The Aviation Ministry had imposed lower and upper limits on airfares after the resumption of services in May 2020 following the initial two-month nationwide lockdown to contain the spread of Covid-19.

Thereafter, the limits were relaxed in a phased manner according to the improvement in air traffic in the country. The move which comes in the middle of a lean traffic season is likely to unleash a fare war which would lead to a lowering of ticket prices, airline executives and industry experts said.

Even with the fare cap capping fares beyond 15 days, airlines had shown pricing discipline for tickets booked 15 days ahead of the journey.

The ministry had imposed lower and upper limits on domestic airfares based on flight durations when services resumed after a lockdown in 2020- the first time since the deregulation of fares in 1994.

While it had tweaked the system multiple times like allowing market-driven pricing for flights beyond 15 days, it had divided the industry with IndiGo and Vistara opposing regulation of fare and SpiceJet and Go First supporting it.

“The decision to remove airfare caps has been taken after careful analysis of daily demand and prices of ATF. Stabilisation has set in and we are certain that the sector is poised for growth in domestic traffic shortly,” aviation minister Jyotiraditya Scindia said.

The picture is dramatically different from two years back with jet fuel price doubling and a weaker rupee against the dollar increasing input cost for airlines. However, Akasa Air backed by Rakesh Jhunjhunwala has started operations which would increase the competitive intensity.

AKASA AIR
Akasa Air backed by Rakesh Jhunjhunwala has started operations which would increase the competitive intensity.

Yet airline executives said that airfare would see a steep fall at least till the end of September when traffic is lower due to the monsoon. “There is an expectation that airlines will maintain pricing discipline in the festival season which starts from October but a few airlines which are in urgent need of liquidity may undercut to raise cash. The industry is such that if anyone drops ticket prices, other airlines will match it,” said an airline executive.

A second airline executive, however, said that even with the fare cap capping fares beyond 15 days, airlines had shown pricing discipline for tickets booked 15 days ahead of the journey. Market leader IndiGo reported a yield of over INR 5 in the last quarter the highest in the airline’s history.

(With Inputs from The Economic Times, MoneyControl)

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