A Delhi-Mumbai air ticket will not cost more than Rs 10,000 (minus taxes) for the next three months, as the government has decided to fix a tariff cap for the first time since deregulation of fare in 1994. The maximum fare, along with goods and services tax, passenger security fee and other levies, on this route may not cross Rs 11,500 as domestic flights resume on Monday after more than two months of shutdown.
Civil Aviation Minister Hardeep Singh Puri, while announcing the resumption of air transport from May 25, said there would be fare caps and floor prices based on the duration of flights. In all, seven price bands have been announced, with the lowest fare at Rs 2,000 for a flight duration of up to 40 minutes and the highest at Rs 18,600 for a journey lasting 180 to 200 minutes.
Under the fare capping policy, minimum, median and maximum fares have been fixed for flights of seven time bands ranging from 40-60 minutes to over three hours. Based on this formula, the minimum fare (excluding taxes and fees) on the Delhi-Mumbai route has been capped at Rs 3,500 and the highest at Rs 10,000. Airlines will have to sell 40 per cent of the total seats at a fare less than the median price of the lowest and highest slabs, working out to Rs 6,700.
“This is not fare fixation. This is an extraordinary situation. Earlier, there were 100 flights operating between Delhi-Mumbai daily. Now we may have only 30 flights. With the pent up demand and one-third capacity, it is conceivable the fares would have sky rocketed,” Puri said.
While the objective is to make air travel affordable, the government is conscious of thin margins and cost pressures of airlines, he added. A government official said the demand to regulate price had come from a few airlines, which are of the view that the market will drastically change as the virus threatens the viability of weaker airlines. He said these airlines suggested that an appropriate profit margin can be added to determine the break-even price per kilometre accounting for costs of fuel, crew and airport charges.
“A few airline executives asked for a regulation in pricing as they fear that market leader IndiGo — with close to 50 per cent share — may become monopolistic and control pricing in a post-pandemic market,’’ the official said.
Promoter of low-cost airline SpiceJet Ajay Singh has been vocal about pricing indiscipline, saying a super low fare regime will lead to airlines going bankrupt.
The government’s interference with pricing has not gone down well with the industry. “The aviation sector has suffered a massive financial trauma. Market-based pricing is the best medicine to nurse airlines back to health,” said Anand Stanley, chairperson, civil aviation committee at Ficci. But there are some who believe that a price cap for a temporary measure is a good move to balance consumer interest with airline profitability.
“The free market play can’t work as there are supply restrictions and pent-up demand which automatically will lead to airlines having a strong position to dictate pricing. This is a good move by the government to balance both consumer interest with airline profitability,” said Ravi Kini, managing partner, MV Kini & Co.