Airfares are fixed based on dynamic pricing, demand-supply theory: Centre tells Kerala HC

The Central Government on Friday informed the Kerala High Court that after privatisation and as per prevailing regulations, airfares are not regulated by the government and ticket prices are determined by the demand and supply theory.

The Centre also submitted in an affidavit that the introduction of caps on fares in various sectors will lead to market distortion. The airlines adopt dynamic pricing which is a global practice by often changing prices, depending on the day of the week, time of day, and number of days before departure of the flight, factoring in different components such as, how many seats a flight has, departure time, and average cancellations on similar flights.

Dynamic pricing is a global pricing strategy in which highly flexible prices for products or services are based on current market demands. Businesses are able to stay competitive by changing prices based on algorithms that take into account competitor pricing, supply and demand, and other external factors, the Centre said.

The submissions were made by the Centre when a writ petition challenging the hike being effected by the airlines operating in the Gulf sector in their fares during festival seasons. The affidavit also pointed out that the domestic airline pricing runs in multiple levels [bucket or ‘Reservation Booking Designator) which are in line with the practice followed globally. The purchase of tickets in these various buckets is subject to the availability of seats in that class/category at that point of time in the respective category.

Usually, lower levels of the fare in the bucket are assigned to advance purchase booking (eg up to 90,60,30,14, and 7 days before departure). Fare increases with the increase in demand for seats and as a flight’s available seat inventory diminishes, lower bucket fares consequently may not be available. Hence, a passenger who make a booking closer to the date of travel may not get the lower fares as the inventory earmarked for these lower fares may have already been booked. Besides, lack of demand for a given flight translates into lower fare buckets remaining open even close to the date of departure.

However, in order to ensure that airlines do not charge excessive airfare from passengers during a force majeure event, the Union Ministry of Civil Aviation often issued directions to cap airfares for a specific period.

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