You are here: Home » Opinion » Columns
Business Standard

Anjuli Bhargava: Calling their bluff


Anjuli Bhargava  |  New Delhi 

Can someone enlighten me as to what’s going on? I am referring to this quid pro quo that’s been playing out through the media between the airline industry, the aviation ministry and the government.

As I have interpreted it, here’s how it goes. If you reduce aviation turbine fuel (ATF) prices to the extent we want, we won’t fire people (conversely, if you don’t, we might just). If you reduce ATF prices or declare it a ‘declared good’ (attracting a uniform sales tax of 4 per cent across the country), we will reduce fares (if you don’t, fares may well rise). In other words, if you make our lives easier, we may return the favour but if you don’t, go to hell.

While I think that it is ridiculous for anyone including our demi-god politicians to dictate prices or fares (as attempted by Praful Patel) — I am also quite impressed at the ingenuity of the Indian carriers led by Jet Airways and Kingfisher Airlines.

Here’s why. Fares have been raging at all-time highs for a while now. Ever since oil prices reached their all-time highs in early- and mid-2008, fares reflected the increase. They had to, if airlines were to survive (many have done so only by a whisker).

Then oil prices started coming down. I haven’t sat down to do the calculations myself but industry experts tell me that ATF prices have fallen by over 45 per cent in the last three months, giving considerable respite to airlines as over 45 and in some cases 50 per cent of their operational costs are on fuel. Crude oil itself is down by a staggering amount from $147 per barrel in mid-July to some $47 per barrel now, the lowest it’s been since three-and-a-half years.

Airfares however are probably at a three-year high! Not only are they remaining stubbornly stuck, they intriguingly appear to have risen in some sectors (perhaps to maximise profits in peak season).

For the sake of simplicity, let me take one example and expand it as much as possible — airline fares are rather complex and the basic fare can have as many as four slabs, after which there is a fuel surcharge, a passenger service fee, a congestion charge and even a transaction fee!

If, for instance, you had booked a Jet Airways flight from Chennai to Delhi on November 24th (as a friend of mine has indeed done) for January 1, chances are you would have paid a fare of Rs 8,410, including the transaction fee (Rs 350) at a base fare of Rs 4,585 — if, that is, you went in for ‘check’ fares. Technically, you could have paid a lower total fare if you had managed to get the lowest, no-refund slab of Rs 2,350 but landing that fare is as unlikely as a Siberian crane landing on your windowsill.

Now, if you tried to book a flight from Chennai to Delhi on Jet Airways today (same fare slab, the lowest remaining a rarity), you would have to pay Rs 8,975 (again, for the ‘check’ category), despite the transaction fee of Rs 350 having vanished. This is because the base fare in this slab for some reason seems to have risen from Rs 4,585 to Rs 5,500.

If the fare slab had remained as it was and if the transaction fee had gone, the fare should have been Rs 8,060, with the transaction fee of Rs 350 withdrawn. However, because the base fare itself has inexplicably risen, you end up paying more today for the journey despite the transaction fee going.

In other words, despite the 45 per cent drop in ATF prices over the last three months, fares have either remained static or even moved up in some cases. So, as and when the government succumbs to the airlines pressure and the airlines in turn succumb to government pressure — and fares do come down — you have to remember that they are coming down in some cases after having risen.

Incidentally, for those who find it imperative to fly in the front of the aircraft, the one-way fare from Chennai to Delhi on Jet Airways would be Rs 29,060 (or Rs 58,000-odd for a return journey!) for business and Rs 20,770 (Rs 41,000-odd return!) for a full-fare economy one-way ticket, which to me seems akin to daylight robbery (call me spoilt from the short era of low fares we experienced in 2006 if you wish).

The point is that airlines, first and foremost, need to survive and putting pressure on them to reduce fares is not the best way to tackle the issue. If, however, a neat quid pro quo has indeed been worked out, then it would be fairer for airlines to tell us what kind of fare increases they made prior to the reductions they may now agree to make. They should, above all, be transparent. So, if and when fares do actually come down in response to the government’s favours, we will have to work out for ourselves how real these reductions are, not take what the airlines tell us as the gospel truth and call their bluff if the need arises.  

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Fri, December 05 2008. 00:00 IST