As fuel prices take wing, Indian airlines have renewed their demands for the government to raise its regulatory caps on airfares. But there appear to be divergent views within the industry on how it should go about this. While some airlines are lobbying for free pricing, others want only the upper cap on fares to be removed while the floor remains in place to ‘protect weaker players’. As both the floor and cap on airfares prevent free market forces from operating and often work to the detriment of passengers, the government needs to consider doing away entirely with price controls. When Covid struck, industry watchers feared a permanent shrinkage in domestic air travel. But data from the Directorate General of Civil Aviation show domestic air traffic normalising at a brisk pace, lately, with flights ferrying 478 lakh passengers between January and May 2022, a 53 per cent jump year-on-year, with leading airlines operating at load factors of 80 per cent plus. In May 2020, when allowing airlines to resume limited operations at 33 per cent capacity after the Covid-induced lock-down, the Civil Aviation Ministry had imposed floor and ceiling fares on domestic routes to ensure that airlines did not charge usurious fares. Now that the capacity restrictions have been completely lifted (from October 2021), there appears to be no real reason to persist with artificial price interventions.

Though intended to protect them, fare caps have actually done Indian air travellers a disservice on many counts. For one, the cap is applicable only to travel that is scheduled within 15 days of the booking. In effect, passengers who plan their travel well in advance often end up paying higher fares than those booking at the penultimate hour. Two, airlines earlier used to roll out deep discount offers during off-season which made air travel affordable to middle-class Indians and helped bump up load factors. But the floor on fares since May 2020 has put paid to such discounting. Three, the Centre has had to make multiple upward revisions to the floor and ceiling fares since May 2020 to keep up with rising fuel prices and inflation. As a result, current fare caps are perhaps too liberal to make a difference to affordability. For flights of less than 40-minute duration, the floor and ceiling fares stand at ₹2,900 and ₹8,800 respectively, going up to as much as ₹9,800 and ₹27,200 for three-hour flights. Four, with price controls preventing airlines from dynamic pricing to improve loads, cash-strapped airlines seem to be flogging their aircraft more and cutting corners on timely maintenance, leading to more safety-related incidents.

Doing away with pricing caps may be essential not just to restoring the health of the airline industry, but also to re-introduce competition in the Indian skies which are now dominated by IndiGo with a 54 per cent share. Akasa Air has recently received regulatory clearance to start domestic operations while Air India, now in the Tata fold, is readying expansion. These new entrants are much-needed not just for domestic air travellers to enjoy better deals on fares, but also to raise the bar on quality of service and safety standards in the industry.

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