In a response to concerns over rising airfares and oligopolistic practices in the aviation sector, the Government clarified in the Rajya Sabha, on Monday, that airfares are ‘governed’ under the Competition Act, 2002, and anti-competitive practices are monitored by the Competition Commission of India (CCI).

The clarification came in response to an unstarred question posed by John Brittas, where he questioned the government on oligopolistic practices, excessive airfares, and punctuality issues in airline operations.

The query specifically addressed whether Rule 135(4) of the Aircraft Rules, 1937, empowers the Directorate General of Civil Aviation (DGCA) to intervene in such cases.

Responding to the question, Minister of State for Civil Aviation Murlidhar Mohol highlighted that airfares are determined by market demand, supply, seasonality, and operational considerations. 

While the government refrains from regulating airfares to maintain competitiveness, the Competition Commission of India (CCI) keeps anti-competitive practices, such as cartelization, in check. 

Airlines have been sensitised to ensure fare reasonability, especially during peak seasons, the Minister said. 

The DGCA has set up a Tariff Monitoring Unit (TMU) to monitor predatory or excessive pricing by airlines, ensuring compliance with Rule 135 of the Aircraft Rules, 1937, he noted.

The Minister emphasized that while the government does not regulate airfares directly, it ensures the market remains competitive and passenger interests are safeguarded. In instances of exorbitant pricing, government intervention includes shifting capacity to high-demand sectors to stabilize fares, he added.

The aviation sector, with 830 aircraft and 12 scheduled commuter operators, has seen impressive growth in domestic passenger traffic in recent years.

The government remains committed to facilitating a robust and competitive aviation ecosystem while keeping a vigilant eye on anti-competitive practices through the CCI and DGCA mechanisms, according to Mohol.

IATA Report 

The recently released IATA Report on ‘Airfare, jet fuel price, and inflation’ explored trends in airfare, jet fuel prices, and inflation from 2015 to 2024, highlighting how airfares have generally increased post-pandemic but remain lower in real terms compared to 2015 due to inflation and the sharp rise in jet fuel prices. 

Jet fuel, which accounts for approximately 30 percent of airlines’ operational costs, has significantly outpaced general consumer inflation, adding substantial financial pressure on airlines. 

While domestic airfares in key markets such as the US, China, and India have remained stable or below 2015 levels, international fares were more volatile, surging during periods of capacity constraints and strict border controls, particularly in China and Hong Kong.

The report identifies notable regional variations, with North America and Europe largely reflecting global trends, while Asia-Pacific markets experienced pronounced declines in real airfares due to ongoing inflation and economic conditions. In contrast, Middle Eastern countries, especially oil-exporting ones, maintained relative airfare stability despite fluctuations in jet fuel costs.

Latin America and Africa faced unique challenges, as rampant inflation caused real airfares to plummet even when nominal prices increased. A striking exception is Iceland, where reduced flight capacity and surging tourism demand resulted in sustained high airfares post-pandemic.

The analysis highlighted that airlines have often absorbed rising jet fuel costs instead of fully passing them on to consumers, compressing their already slim profit margins. 

Real airfare declines, adjusted for consumer price inflation, have been a consistent trend globally since 2015, even as jet fuel prices show persistent nominal increases, the report noted. 

Published on December 17, 2024