DGCA asks airlines to slash fares in highest fare bucket

With the recent spike in airfares showing no signs of cooling, aviation regulator DGCA has now stepped in asking airlines to slash fares in the highest fare bucket. However, there's a problem to begin with. The fare band that's been approved by the DGCA is so wide, that not only does it make it difficult to track fares, but it also makes it easy for airlines to maneuver them, reports Sumit Jha of CNBC-TV18.

DGCA has issued an order to domestic carriers to reduce the highest fare bucket by 5-20%. With airfares witnessing a sudden spike in recent weeks despite a softening in ATF prices. The DGCA has finally started a crack down. But just how effective is such an order?  A closer look at the fare band set by the DGCA shows the range is so wide that airlines can continue to charge higher fares without going beyond the range. At present a Delhi-Mumbai one way ticket is available at around Rs 8,000 on most airlines but it would still be within the stipulated fare band if airlines ramped it up by Rs 4,000-5,000. That’s because the DGCA set band for different airlines in this route varies from Rs 2700 to as high as Rs 16,000. The situation is worse for destinations with just one operator. For eg on Delhi-Gorakhpur route, where Jetkonnect is the only operator, fares are consistently well above Rs 10,000. While it is still within the fare band which stipulates a maximum fare of Rs 16,000, its much higher than the fares just a month ago of Rs 5,000-6,500. Infact, airlines have been gaining despite a fall in passenger traffic due to rising airfares. Passenger traffic fell in May for the first time in 12 months to 54.48 lakhs from 54.96 lakhs last year. But that hasn't impacted airlines as their yields--revenue per passenger-- are up. A look at DGCA's monthly data for May clearly shows that while demand has gone south, load factor for top three airlines by market share has improved. Moreover, the DGCA's action comes at a time when the peak travel season is mostly over and the fares are likely to come down in the following lean season.