Explained | Why airlines want government to lower capacity cap

The proposal was cleared by the company board on March 6 and was voted by the shareholders on March 12. The e-voting ended on April 10.

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26 Aug, 2025 12:21

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Airlines are again knocking at the doors of the government for help, as the second wave of COVID-19 wreaks havoc on aviation just when they started recovering from the first blow.

Senior executives from the industry met top bureaucrats at the Ministry of Civil Aviation this week with several demands.

What are their demands?

There are three. One, financial help to keep running operations; two, reduce the capacity cap to 60 percent from the present 80 percent; and finally, 'strict enforcement' of the lower fare limit fixed by the government.

These are quite a few. Are things that bad?

They are. Bookings have plummeted by up to half on many routes. Passenger loads hover below 60 percent, much lower than the 80 percent needed to cover costs. Also, airlines have already been forced to pull out some capacity. Data from OAG, the global travel data provider, shows that airlines in India pulled out nearly a quarter of the deployed capacity by the first week of April. IndiGo reduced flights by a little less than 15 percent, SpiceJet by nearly 16 percent.

Remember, airlines had not recovered to pre-COVID-19 levels. The second wave will further delay a full recovery.

If airlines have already reduced capacity, why are they asking the government to lower the cap?

That is because some of the bigger ones, mainly IndiGo, are more financially capable to hold on to their capacity, than others. For instance, if IndiGo continues to deploy 70 or 80 percent of its capacity, while others are forced to bring down theirs to 50 percent to reduce cash burn, India's biggest airline will keep getting even bigger at the cost of smaller ones.

A cap of 60 percent for all airlines helps maintain status quo in market share. Sources say that IndiGo has stopped asking for the cap to be removed, as it did earlier when passenger traffic was improving.

Ok, that makes sense. The fares part, what is that for?

There were two upward revisions in the floor of airfare bands this year. First in February, when it was raised by 10 percent, and again in March, by 5 percent. This was at the time when demand was improving. But now bookings have gone down, and some airlines could further reduce the fares to prop up their numbers. This will hurt those carriers who can't do this. The request is again to ensure a level playing field.

Will the government extend financial aid?

Unlikely, especially when the government itself is trying to shore up its revenues. Airlines repeatedly cite examples of other governments, including those in the US, Canada and Germany, who have provided crucial aid to their airlines. Unfortunately, the finances of Indian government are not sturdy enough.

Can the government help in any other way?

It sure can. Airlines have to pay several kinds of user fee, including to airports they operate in. This could be reduced. Or, there could be some relief on the fuel costs, if air turbine fuel is brought under GST. Both, however, seem unlikely.

What then?

The capacity cap – the government can easily reduce it to 60 percent.