Airlines fly record number of passengers Sunday, outrace govt price band

Govt price cap was effective till July 31 and it was reintroduced Sunday evening, giving airlines time to sell their inventory at competitive prices

As many as 269,713 passengers flew on Sunday: 75 per cent more than what Indian airlines usually carried before the coronavirus last year prompted the government to restrict air travel and set ticket prices.

Airlines carried around 3,50,000 flyers daily this January, according to the Directorate General of Civil Aviation (DGCA). Airlines operated around 2,065 flights: 65 percent of their capacity before the coronavirus and exactly the regulatory limit.

Industry executives credit Sunday’s numbers to the government’s delaying in announcing a fare band. The price cap--effective till July 31--was reintroduced Sunday evening, giving airlines time to sell their inventory at prices which were at least 30-40 percent lower than the price mandated by DGCA.

“Say for Delhi-Mumbai, the price floor has been fixed at Rs 4,500. But airlines took advantage that the price floor was in effect till 31 July and sold tickets at Rs 2,500 which helped to increase occupancy. This shows that if the government didn’t create an artificial hurdle through price band and floor airlines will reach pre-COVID capacity faster,” said an airline executive.

Airline and airport executives said the sudden spurt in numbers was encouraging but warned that the growth depended on them selling tickets without government-mandated price bands.

They warned that since the government has reintroduced the fare band, such a growth momentum may not sustain.

“Airports saw their busiest day yesterday primarily as airlines were able to sell tickets without any government mandated cap and floor. I am afraid this may not sustain as the price floor has been reintroduced. I think yesterday’s numbers raise the necessity of a debate if government fixing price caps and floors is at all good for the industry,” said an executive of a private airport.

India deregulated aviation in 1994, allowing market forces to determine the fares, but a clause in the Aircraft Act, 1934 still allows the government to frame rules, including those related to the regulation of tariffs.

Under the government’s fare structure, air routes have been divided into eight sections based on travel time. The government has fixed its minimum and maximum fare.

Ronojoy Dutta, chief executive officer of IndiGo, had earlier said that regulatory caps on capacity on fare hurts an airline’s decision-making.  “Our morning fare should be so different from an afternoon fare, one way fare out of Ranchi is very different from an incoming fare into Ranchi. Let people get creative with it, let people experiment with it and let's see what the right answer is. But let's not have it dictate by someone by saying this is what the fare should be,” he said.