ANALYSIS. Aviation Ministry’s ‘populist proposals will hurt airlines’

The Aviation Ministry’s proposal to cap airline cancellation charges and slash excess baggage fee, a pro-traveller move, has been termed as ill-timed by industry experts who believe it will hit profitability of airlines.

The Ministry has proposed that airlines can charge a maximum ₹100/kg for baggage in excess of 15 kg and up to 20 kg. In case of cancellation of tickets, statutory taxes and user development fee/airport development fee/passenger service fee shall be refunded.  “Under no circumstances cancellation charge shall be more than the basic fare,” the Ministry said.

“The decisions by the Aviation Ministry are populist in nature and have come at a wrong time with ATF prices on the rise. Cancellation fees being higher than base fare means they would have to rejig the discount offers. Cheaper charges of extra baggage mean more fuel burn. Every extra kg means one-third of a kg more of ATF and with higher fuel costs, this will affect margins,” a consultant at a global aviation consultancy firm said.

This could mean a double whammy for airlines as the price of ATF (jet fuel) in Delhi was increased by 9.2 per cent, to ₹46,729.48 per kilolitre on June 1.

Sharat Dhall, President, Yatra.com, said, “The slew of measures will definitely be cheered by a small segment of travellers. However, the larger chunk of flyers might be impacted by a subsequent increase in fares which we envisage the airlines might be forced to take.”

Amber Dubey, Partner and India head of aerospace and defence at KPMG, said, “It is difficult to assess the exact amount of increase and we’ll have to wait and watch to see if the government reconsiders some of these guidelines.”

He added that the government should refrain from getting into micro-management on issues such as free-baggage allowance, baggage fee per kg etc, and leave it to market forces. Airlines that over-charge or cause inconvenience to passengers will anyway get punished through word-of-mouth and the social media, he added.

According to the Ministry’s proposed guidelines, in case of ‘Denied Boarding, flight cancellation and flight delays’, an amount equal to 200 per cent of booked one way basic fare plus airline fuel charge subject to maximum of ₹10,000 would be paid to passengers in case airline arranges alternate flight that is to depart after one hour, but within 24 hours of the booked scheduled departure.

The Indian aviation sector is finally coming out of the woods thanks to the drastic fall in oil prices last year, a rising economy and growing aircraft fleet, Dubey said, adding that “It needs 3-4 years of 18-20 per cent annual growth to consolidate and expand; and to recover the huge debt and losses of the past.  Care should be taken by the government not to throttle the aviation sector so much in the name of ‘honouring public sentiment’ that it takes us back to square one”.

This proposal will be put up on the Ministry of Aviation’s Web site for 15 days during which stakeholders can give suggestions after which it will finalise the proposed amendments and implement them.

“The government has spent seven months in public consultations on the draft National Civil Aviation Policy.  One hopes the Ministry gives at least four weeks to the airlines to respond to such drastic provisions that have a straight impact on the airlines’ bottom-lines from Day 1,” Dubey said.

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