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Capping airfares 'unfortunate' decision', says CAPA

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Press Trust of India  |  New Delhi 

Capping airfares is a "bad and unfortunate" decision as pricing is most strategic to airlines, according to aviation consultancy CAPA South Asia, while global grouping IATA said carriers should have the freedom to make their commercial decisions.

However, a senior airline official said the move would protect carriers from extremely low fares from competitors.

After remaining under suspension for two months in the wake of the nationwide lockdown to curb spreading of coronavirus infections, domestic commercial flight operations would restart on May 25. Initially, airlines would operate with one-third of the capacity.

The capping of airfares would be in force for three months after flight services resume on May 25.

Briefing reporters on Thursday, Civil Aviation Minister Hardeep Singh Puri said if the prices were not fixed, then it was "entirely conceivable but I am not saying that it would have happened that fares would have skyrocketed and remained very high".

"Once we exit from this three-month period, we can either return to status quo ante which is a situation prevailing prior to COVID or we can have a market-based system that is equitable," he noted.

CAPA South Asia's CEO and Director Kapil Kaul said that partial and calibrated resumption of flight services is welcome but cap on fares is a "bad and unfortunate decision".

"This decision will hurt airlines more than helping (them)... Interfering in pricing which is most strategic to airlines is taken based on a wrong advice," he told PTI.

Referring to the coronavirus pandemic, the senior airline official said capping of airfafres in unprecedented situation like this is not a bad idea and rather it is a good move as airlines are also protected from from extremely low fares.

Except for disasters like that happened in Nepal, J&K and Chennai, Kaul said this is the first time a "a network-wide fare capping has been introduced".

CAPA South Asia is a consulting and research practice focussed on aviation and aerospace sector focussed consulting and research practice.

There were restrictions on airfares during the time when Nepal was hit by a massive earthquake in 2015, Chennai floods in 2015 and floods in J&K in 2014.

IATA Assistant Director (Corporate Communications - Asia Pacific) Albert Tjoeng said, "Airlines need to have the freedom to make their commercial decisions, including the pricing of airfares. Hence, we recognise and hope that this is a one-time measure as a result of COVID-19 and will be discontinued on August 24.

"India's Air Corporation Act was repealed in 1994, so the announcement to regulate airfares more than 2 decades later comes across as certainly a step back."

Travel portal EaseMyTrip.com Chairman and CEO Nishant Pitti said the government putting a cap on lower fare would reduce sale of future tickets among customers compared to pre-COVID-19 time while ceiling on higher fares would help customers to book their tickets even at the last minute.

"This has been brought in place to ensure that the passengers, with very limited options available, are not exploited by being charged exorbitant fares and the sector does not suffer due to predatory pricing by a few players. This will have a direct impact on the customer's buying behaviour," he added.

The minimum and maximum fares would be for seven categories that have been decided on the basis of flight duration. Flights operating for less than 40 minutes, 40-60 minutes, 60-90 minutes, 90-120 minutes, 120-150 minutes, 150-180 minutes and 180-210 minutes.

"As we saw in the morning when some airlines opened bookings and later closed also, the fares which were reflecting at that time were very high. But then there is the possibility also of the fares hitting the rock bottom if demand slumps after the initial surge. So that way it (capping of fares) is a good move," the airline official quoted earlier said.

Regarding airfares, the minister said there were complaints earlier but did not interfere saying market forces were operating here. "I have got extreme examples... we have studied this and we have looked at the corresponding rail fares," he noted.

"Affordability is one criteria and equally we are conscious of the fact that airlines operate on thin margins. That their business models are based on high operating costs," Puri said as he mentioned about having minimum and maximum fares.

The fare structure would be in place for three months till August 24.

As an example, Civil Aviation Secretary Pradeep Singh Kharola said the minimum fare on Delhi-Mumbai route would be Rs 3,500 and maximum at Rs 10,000.

The second rider is that 40 per cent of the seats have to be sold at a fare less than the mid-point of the band and it is being ensured that fares don't go out of control also. At the same time, fares are reasonable for airlines also, he said.

According to him, services would be started with one-third capacity and there is a huge pent up demand of last two months.

"So fares have to be regulated. This is the mechanism we have brought," he said, adding that the fixed price excludes PSF, UDF and GST. GST is Goods and Services Tax while PSF is Passenger Services Fee and UDF stands for User Development Fee.

Aviation regulator DGCA monitors airfares on certain routes on a random basis.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, May 21 2020. 20:47 IST
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