April 18, 2024
📰 FEATURE STORY
Should the government regulate domestic airfares?
The summer months are upon us. That means people are planning their summer vacations. Summer air travel is about to shift into high gear. As the country emerged from the pandemic lockdown and travel restrictions, many were focused on how the airline sector would recover. Safe to say, it’s a good news-bad news situation. People want to travel, and the demand has been high. However, we’ve seen long delays, cancellations, chaos at airports, and high airfares.
Let’s focus on that last point. If you’ve ever planned to travel by flight, you most likely booked as early as possible to get the cheapest possible options. Airfares fluctuate since they’re market-dependent. Over the past couple of years, airfares have soared. In fact, India has seen the largest jump in the Asia-Pacific and Middle East. Should the government not then intervene on behalf of consumers, or should they stay out of it completely?
Context
We’ve come a long way since people paid ₹140 to fly from Mumbai to New Delhi when India gained independence. That same route would cost anyone upwards of ₹5,000 today. According to the Airports Council International (ACI), India has witnessed a 41% hike in airfares. We’re at the top, followed by the UAE and Singapore.
Last June, Aviation Minister Jyotiraditya Scindia noted the levels of increase in airfares that surged post-lockdown. He said maximum ticket prices should be “within a certain limit”. His statement came in the wake of Go First’s insolvency issues and a meeting with the Airlines Advisory Group, where the airlines were told to self-monitor fares.
Summer is always a hectic time for airlines as travel demand surges. Naturally, prices then increase. In the past financial year, airfares on some domestic routes skyrocketed. Between April and November 2023, fares for non-stop flights between Srinagar and Leh increased by 229% compared to the national average of 21%. On the Jaipur-Goa route, IndiGo was the only airline with non-stop flights. That led to a 135% increase in airfares.
How are these fares determined? They’re determined by the market forces. Higher demand means higher fares. This dynamic pricing is done to keep the sector competitive. India also has many festivals, so people travel during those holidays and long weekends. Also, air traffic in India peaks in May and June and then again between October and January. Airlines also account for variables like the price of aviation turbine fuel (ATF).
Is there any regulation? That’s a no. After the Air Corporations Act was repealed in 1994, fares were no longer regulated by the government. The Directorate General of Civil Aviation (DGCA) is only an aviation safety body and doesn’t deal with airfares. Most countries have deregulated their aviation sectors.
Recently, the Parliamentary Standing Committee on Transport, Tourism and Culture tabled a report outlining measures on the government taking action on high airfares. The solution is capping airfares for specific routes. Is this a good idea? Should the government get involved?
VIEW: Necessary to keep consumers in mind
The Parliamentary panel report stated various instances where airlines hiked prices exorbitantly during festivals and holidays. After Go First’s issues, the summer travel season saw several people on social media complaining of high ticket prices. The problem is that a significant chunk of the air routes are under a duopoly – IndiGo and Air India. That’s not good for consumers since there’s limited choice, and these airlines can charge higher fares.
Under the 1937 Aircraft Rules, airlines are allowed to fix tariffs while keeping in mind reasonable profits and general market conditions. Despite the DGCA’s oversight, which can’t fix or regulate but only monitors airfares, airlines have continued to charge excess. There must be some government intervention to keep consumer’s interests in mind.
The Parliamentary panel report noted the importance of the aviation sector’s recovery in the wake of the pandemic and said there needs to be a balance between passenger and airline interests. It proposed giving the DGCA some powers to regulate airfares and a separate entity with quasi-judicial powers to exercise control over airfares. Another way to keep airfares in check is for the government to propose a price cap on certain routes. Keeping in mind the airlines, the panel proposed adjusting this ceiling during festivals and holidays.
COUNTERVIEW: The government should stay out of it
It’s always a tricky thing when the government decides to intervene in market dynamics. The government has stated that regulating tariffs won’t do the aviation sector any good, especially after the losses it has endured due to the pandemic. In fact, it might only exaggerate the sector’s issues. The airlines have a tricky balancing act – the airfares should be high enough to keep them solvent but not too high to become uncompetitive. So, the airlines know that exorbitant prices aren’t good for anybody.
If the government does have any role to play, it’s on taxes for ATF. If the government decides to increase taxes, airlines will have little option but to pass that on to consumers. Otherwise, they’d operate on losses. The sector doesn’t need any more airlines going out of business.
The problem with setting price floors and ceilings is it restricts business. Some airlines are currently in a financially unhealthy position. There’ll most certainly be a knock-on effect since airports will also suffer due to lower footfalls if airlines are forced to cancel flights due to losses. India is a big market for low-cost carriers that have and will continue to offer competitive prices. The government getting involved or regulating a competitive market is seldom a good idea.
Reference Links:
- Why are airfares in India soaring, and is there a way to beat it? – Business Standard
- Pinching the pocket: Why domestic airfares are skyrocketing by up to 229% on some routes – Times of India
- ‘If we are able to charge higher tariffs…’: Air India CEO Campbell Wilson on increased ticket prices for select routes – Business Today
- Rising airfares: Parl panel wants DGCA involvement in air ticket pricing, unhappy with differing seat prices in same flight – The Economic Times
- Parliamentary panel calls for DGCA intervention about airfares, recommends route-specific capping of airfares – Moneycontrol
- Why the govt shouldn’t decide what you pay for an air ticket – Times of India
What is your opinion on this?
(Only subscribers can participate in polls)
a) Domestic airfares should be regulated by the government.
b) Domestic airfares shouldn’t be regulated by the government.
🕵️ BEYOND ECHO CHAMBERS
For the Right:
Food, Faith and Fascism in New India
For the Left:
Lessons from India’s alternate development plan