The Union government’s Friday decision to extend and increase fare caps would largely benefit smaller airlines with weak finances, airline executives and industry experts said.
The civil aviation ministry’s notification allowed airlines to sell more seats on domestic routes and charge higher fares, effectively enabling airlines to deploy more flights. The fare caps have been in place since May 2020, but some carriers, especially those with larger market share, want price caps to go now.
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“The government shouldn’t be in the business of regulating airfares or regulating capacity," said a senior executive with a prominent low-fare carrier. “This was supposed to be a temporary affair due to the pandemic and rising number of covid-19 cases. However, this structure still stands, which is unfortunate," the executive said on condition of anonymity.
According to the notification, the minimum and maximum fares for the shortest flights (Class A) have been increased to ？2,900 and ？8,800 from ？2,600 and ？7,800, respectively. Fares on the longest sector (Class G) have been hiked to ？9,800 and ？27,200 from ？8,700 and ？24,200, respectively.
As a result, airfares are expected to become more expensive, especially for those booking within 30 days of travel. The latest development also comes at a time when domestic air passenger traffic is slowly improving following a huge fall during the second wave of the covid-19 pandemic in April and May.
Domestic air passenger traffic during the 1-15 August period stood at 32,96,922, compared to 22,81,706 during the same period in July, 12,53,398 during 1-15 June and 11,41,644 during 1-15 May, according to data collated by aviation website Network Thoughts.
However, the current numbers are below those registered during the same period in April (33,84,055), March (38,20,860) and February (39,83,804).
“The government’s decision to increase fare caps was done probably to protect smaller airlines as larger airlines would likely resort to discounts and offers to attract passengers, who are still a bit apprehensive about taking flights during the pandemic," a senior official with a domestic aviation consultancy said.
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Among listed airlines, InterGlobe Aviation Ltd—which operates IndiGo, the country’s largest domestic airline—had a total cash balance of ？17,067.9 crore comprising ？5,620.7 crore of free cash and ？11,447.2 crore of restricted cash at the end of 30 June.
In comparison, the other listed airline, SpiceJet Ltd, had cash and cash equivalents of ？35.94 crore at the end of 31 March. The same data for the June quarter is not available.
When contacted, a civil aviation ministry spokesperson didn’t comment on how long the government plans to continue with controlling fare and capacity caps.
“We believe that airfares are a function of market dynamics and free-market pricing is the best way to manage supply and demand. However, given the circumstances, we understand the constraints and considerations around the decision from the ministry on fare caps," said a Vistara spokesperson. Spokespersons of SpiceJet, AirAsia India, Air India and GoFirst didn’t offer comments.
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