SpiceJet discount offer unlikely to get ministry go-ahead

The ministry of civil aviation (MoCA) is unlikely to approve budget carrier SpiceJet's proposal to offer restricted non-changeable, non-refundable fares, saleable at any time for domestic travel.

While the airline had in its proposal to the government argued issue of such tickets would help improve occupancy and allow them to discount by half even last-minute or spot fares, highly placed sources in the ministry said SpiceJet would have to refund to passengers the charges levied in an air ticket by the government and airport operators in the event of cancellations.

A senior official in the Directorate General of Civil Aviation (DGCA), confirming such a request from SpiceJet, said, "The total fare charged by any airline includes levies by government and airport operators. These components like CUTE (common user terminal equipment) Fee, ADF (airport development fee), Service Tax, Passenger Service Fee (PSF) which remain unutilised in event of cancellations would have to be returned to passengers."

AIR FARE STRUCTURE

• Base fare - Goes to airline
• Airline fuel charge - Goes to airline
• Passenger service fee - Goes to government
• Airport development fee - Goes to airport
• CUTE (Common Use Terminal Equipment) Fee - Goes to airport
• Service tax - Goes to government

Typically, airfares have various components, including base fare, fuel surcharge, various airport charges and taxes. Of this, base fare and fuel surcharge goes to the airline, while the other components go to the government and the airport operator.

SpiceJet declined to comment, saying it was yet to receive any communication in this regard.

Elaborating on the government's stance, another official added, "Refund of tickets by airlines is a major source of grievance among passengers. We receive numerous complaints related to delay on refund of unused tickets, about the amount refunded and the policy of not refunding but adjusting against tickets for future travel. There are passengers who have not received refunds from airlines which have stopped operations two to three years earlier. We have to protect consumers' interests. Rules for refund defined in the Civil Aviation Requirements (CAR) currently hold that airlines have to refund money charged under heads like passenger security fees, congestion charge and ADF. CAR guidelines further state airlines would have to refund money and not just say the amount can be adjusted against future travel.

While writing for the exemption, SpiceJet's Chief Operating Officer Sanjiv Kapoor, had held since the demand for domestic air travel has been sluggish, occupancies have been poor, making it difficult for airlines to offer discounts on last minute tickets. Customers complain that last-minute fares are very high, he wrote, but "we are unable to discount our distressed inventory close to the date of travel as current regulations do not allow us to offer restricted non-changeable."

If airlines in India (as in other countries globally) are allowed to offer restricted discounted non-changeable, non-refundable fares to dispose excess inventory, he argued, it would help prevent wastage and allow airlines to fly with improved occupancies. Kapoor claimed in his letter, "Airlines would benefit from this as well as flyers, who would be able to get much better fares even at the last minute, if they are willing to accept the restrictions that come with it.... it is in no one's interest to fly aircraft with empty seats."

Burdened by record losses in the last financial year, SpiceJet has been looking at various ways to cut costs and raise money. The airline has launched a series of discount offers since January this year. While SpiceJet claims them to be market stimulation measures, industry insiders hold flash sales have been initiated to improve cash flows and clear vendors' dues. SpiceJet posted a record loss of Rs 1,003 crore for the financial year ended March, up five-fold from Rs 191 crore in FY13.