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Zero baggage fares can generate $400 million in revenues for airlines, benefit customers, says CAPA India

While advising the government to allow airlines to do so, the advisory also called for 'commercial freedom' of carriers

June 29, 2020 / 05:16 PM IST

Pushing for a case to let airlines offer zero baggage fares, advisory firm CAPA India has estimated that such a move could generate an incremental $400 million per annum in revenues.

"This will also result in passengers with no baggage having access to lower prices," the firm said in a report released on June 29.

Underlining that 'ancillaries' generate up to $50 billion of revenue for global carriers, "and have proven to be key to profitability for those that have a clear understanding of their potential," the report however rued that airlines in India are unable to do much.

"One of the reasons that ancillary revenues are not better developed in India is that carriers face unnecessary regulatory hurdles that prevent them from maximising such opportunities. For example, airlines are not permitted to offer fares with zero baggage allowance, or non-refundable fares. And currently they have to comply with fare caps and floors," the report said.

Domestic flight operations in India resumed on May 25, and government had set a fare band, asking airlines to fix ticket rates within this range.

CAPA India said no other major aviation market in the world imposes such barriers on airlines, and added, "Allowing complete commercial freedom is a must for the revival of airlines in India.

The report rued that airlines in India primarily focus on the ticket price and neglect ancillaries. "This ultimately serves to drive down yields as passengers tend to be more sensitive to the base fare than to subsequent add-ons," it said.

Importance of cash reservesCAPA India said that most airlines today are 'technically bankrupt' and are starved of cash. "This is what drives them to discount fares, locking them in a cycle of instability," it said.

The report called for a policy level intervention.

"Introduction of a requirement for airlines to be able to meet expenses for at least three months in the absence of any revenue will have a positive impact on industry dynamics," it said.

Unfortunately, this is not recognised at a policy level.

"The Ministry of Civil Aviation should consider giving incumbent airlines 12-24 months to comply with this requirement, with a cash threshold of one-and-a-half months to be met within 12 months, and three months cash within 24 months. This will be a critical policy decision," the report said.

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first published: Jun 29, 2020 05:16 pm