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Indian aviation gets a glimpse of what withdrawal of airline fare caps can do

For passenger numbers to return pre-COVID-19 levels, the government must stop tinkering with market dynamics.

August 03, 2021 / 03:38 PM IST
Airlines have relied on 'sale' as a mechanism to fill up lower fare classes.

Airlines have relied on 'sale' as a mechanism to fill up lower fare classes.

 The aviation industry woke up to record numbers on Monday. As the website of the Ministry of Civil Aviation started flashing the passenger numbers and flight count for the first day of August, there was disbelief, relief and hope in equal measure.

After 110 days, the domestic passenger traffic had crossed the 2 lakh mark. The flight count, too, had crossed the 2,000 mark.

At 2,065 flights across airlines, the departure count stood at 65 percent of pre-COVID levels and with 269,713 passengers—air traffic was at 62 percent of pre-COVID levels with the highest per flight occupancy since restart of services. This also is the highest single-day jump in air traffic from 177,928 on July 31 to 269,713 on August 01.

How did this happen?

The reasons are two pronged. Airlines are under strict regulations since air traffic restarted on May 25, 2020. While not the best practice to tinker with the free market economy, the existing laws in the country do allow setting up of such floor and ceiling prices for fare.

Close

In the past, airlines received a circular on fare caps at least 15 days before the start of a month. But in August, there was a delay in issuing the circular—after the last one lapsed on July 31—and airlines used this window to sell tickets at prices of their choice.

They effectively sold seats at fares of their choice—driven by market dynamics, demand and competition—and not by the minimum fare prescribed by the government. The circular on fare cap however was reinforced on Sunday (August 1) night.

The fare cap especially matters on shorter sectors where the government prescribed fare is much higher than the fares which were available in the pre-pandemic market. Air travellers are also subject to requirements like carrying a negative RT-PCR report which is seldom enforced at road checkpoints—a viable alternative for shorter sectors.

Flights between Mumbai and Delhi are selling at little over Rs 5,000 one way for next Monday while the same route is selling at Rs 2,200 for the first Monday of September when the air fares are not capped, as of now. For holiday destinations like Goa, the fares on the first Friday in September are half of the fares available right now.

The difference is stark on shorter routes like Bengaluru-Chennai, where fares in September are starting at Rs 1,412 while those currently are at double Rs 2,995. The fares also become realistic based on offerings with the full-service carriers being expensive compared with the low-cost carriers.

Sale and Promotions

Airlines have relied on “sale” as a mechanism to fill up lower fare classes, build advance loads and get some cash early. With the fare bands in place, these were few and far. But June and July saw almost all airlines jump the sale bandwagon.

This included the special fare for vaccinated passengers which IndiGo rolled out. Most airlines had rolled out low fares in the market for travel effective August 1 onwards.

These low priced fares in the market have definitely had its effect with passengers lapping up tickets and shoring up passenger numbers. With corporate travel to the minimums and current travel being largely leisure driven, lower fares led stimulation is back for airlines.

Balancing act?

The pandemic has taken a toll across all sectors but time and again the government has tried projecting sectors where normalcy is returning. What the sector can achieve without regulation was seen for a day. Will the government not like to see that passenger numbers are back to pre-COVID-19 levels?

The erstwhile minister of civil aviation Hardeep Puri repeatedly said the passenger numbers will be back to pre-pandemic levels in the next couple of months. That never happened sadly. He also said, again repeatedly, that the fare bands are essential for survival of two or three airlines without ever revealing the identity of those airlines.

While the government extends the long rope, the real question is how long? It is also time to think about what the weaker airlines have done to ensure that they help themselves and are not at the mercy of the fare caps.

Probably, even the weaker airlines will see higher revenue and definitely higher passenger numbers if the fare caps are removed. People are now willing to travel with fatigue having set in and “revenge travel” really taking shape.

Tail Note

Terminals were overflowing, flights were delayed due to rush at boarding, most flights were filled to the brim and the staff, airport retailers and passengers alike or the entire ecosystem had a smile again after months.

What view will the government take? By protecting a few carriers, are the rules impacting many others? Are we delaying the inevitable since protection with fare caps cannot be a permanent feature?
Ameya Joshi runs the aviation analysis website Network Thoughts.
first published: Aug 3, 2021 03:38 pm

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