More than six months after the government barred airlines from pricing their key product, i.e passenger seats, and mandated them to follow fare bands fixed by the it as a temporary measure during COVID-19, there is no sign of a return to free market pricing for domestic carriers yet.
“We will monitor the situation, and then decide whether they will stay or not. Everyone is happy,” Minister of State for Civil Aviation Hardeep Puri said at a press conference on Tuesday.
The government directive issued on May 21, ahead of the resumption of domestic flights following a two-month ban after the nationwide lockdown, has been extended twice and is in effect till February 24. It requires airlines to sell air tickets within a re-determined minimum and maximum airfare prescribed by the government on the basis of flight duration.
Airlines with deep pockets like IndiGo, and those with strong promoters like Vistara, have publicly criticised the move as one that is antithetical to the interest of passengers because airlines can’t offer fares lower than the floor pricing in order to entice people to fly.
It is a widely held view within the industry that the move is meant to support airlines with weak financials like SpiceJet, GoAir and Air India, which would have perished when demand plummeted due to COVID-19.
When the bands were introduced, the government argued that it was trying to do a balancing act, necessitated as the supply was more than the demand to fly, and competitive pricing could have spelt doom for some weak airlines. But the question remains whether this is still needed when domestic traffic has neared 60% of pre-COVID 19 levels.
“Fare caps are not good for the consumers and it is a bad precedent to set but industry financials would have been more severely impacted without these fare caps. Fare caps beyond March 2021 may not be feasible especially as industry returns to pre-Covid capacity by Q1 FY 22. Yet most of the airlines will be happy if fare caps remain,” says Kapil Kaul, CAPA’s head of the Indian subcontinent and the Middle East.
