Airlines warn free seat mandate will raise fares, hurt affordability

We were not consulted before this order was passed, said the Federation of Indian Airlines (FIA)

The Federation of Indian Airlines (FIA) — which has Air India, IndiGo and SpiceJet as members — has called the government’s move to mandate free seat allocation a “regulatory overreach into commercial aspects of airline operations” that will push up airfares, reduce affordability, and distort market-based pricing.

 

The concerns follow the March 18 order issued by the Ministry of Civil Aviation (MoCA), which directed the Directorate General of Civil Aviation (DGCA) to ensure airlines allocate at least 60 per cent of seats on every flight free of charge. It also stated that passengers on the same PNR booking number should be given adjacent seats. 

In a letter dated March 19, the FIA said the directive “will have unintended and adverse consequences for the aviation sector”, mentioning that seat selection fees are a “legitimate component of airline revenue”, especially in India’s high-cost operating environment. 

Airlines, it noted, operate on thin margins and rely on ancillary revenues — which comprise income from add-on services such as baggage, meals and preferred seating — to offset rising costs including fuel, maintenance and airport charges.

 

The FIA pointed out that airport tariffs are governed by the Airports Economic Regulatory Authority (AERA), which allows full cost recovery along with a regulated margin, further adding to cost pressures.

 

“The financial impact of this directive on airlines will be significant, compelling airlines to recover the lost revenues through an increase in fares. As a result, all passengers, including those who may not wish to preselect seats, will end up paying higher fares,” it added.

 

The government’s directive will defeat the stated objective of passenger welfare, as it shifts targeted user-based charges into a blanket fare increase borne by the entire passenger base, the FIA said.

 

“Such a measure disproportionately impacts price-sensitive travellers and erodes affordability, which has been a cornerstone of the growth of civil aviation in India,” it added.

 

From a consumer standpoint, the FIA said that while free seat selection may appear beneficial initially, the overall outcome could be “counter-productive”, as higher fares would reduce affordability, particularly for budget travellers, families and frequent flyers. It also cautioned that forced standardisation of seat allocation would limit service differentiation across airlines, thereby reducing consumer choice.

 

The airline grouping also raised legal concerns, citing a 2017 judgment of the Delhi High Court, which recognised preferential seating as a valid “unbundled service” — a model where optional services are priced separately from the base fare and offered on an opt-in basis. The court had held that such unbundling helps keep base fares lower while preserving passenger choice.

 

The FIA underlined that the court had drawn clear limits on the DGCA’s powers, stating that the regulator cannot fix or cap charges for unbundled services. It noted that intervention is warranted only if principles such as transparency, non-discrimination or opt-in consent are violated, none of which apply to seat selection.

 

It further cited past government responses in Parliament, which have consistently maintained that airfares are not regulated and are determined by market forces under Rule 135 of the Aircraft Rules, 1937. These responses have also acknowledged that unbundling of services can enhance affordability by allowing passengers to pay only for what they use.

 

Referring to the DGCA’s Air Transport Circular (ATC) 01 of 2024, the FIA said all unbundled services are already required to be offered strictly on an “opt-in” basis, meaning passengers must actively choose and pay for optional services rather than having them pre-selected. Airlines, it said, are compliant with this framework, which promotes transparency and consumer choice without directly regulating fares.

 

The FIA also flagged procedural concerns, stating that airlines were not formally informed of any non-compliance nor consulted before the directive was issued. “No prior stakeholder consultation was undertaken,” it said, adding that member airlines were not apprised of the mandate before the press release.

 

Warning of broader implications, the FIA said the move could “set a precedent for excessive intervention in ancillary pricing” and create uncertainty for airlines regarding future regulatory actions.

 

Urging a rethink, the FIA has asked the government to withdraw the directive and allow existing rules to continue, stating that market-driven pricing and opt-in service models remain essential for balancing affordability, choice and financial sustainability in India’s fast-growing aviation sector.

 

The government’s directive, however, follows concerns flagged by DGCA officials about “dark patterns” — design practices on booking platforms that nudge users into unintended choices — which allegedly led passengers to pay for seat selection due to limited availability of free seats. There have also been complaints of passengers on the same booking being seated separately unless they paid extra.

 

In its March 18 order, the ministry said India’s aviation market, now the third-largest domestic market globally with over 500,000 daily passengers, requires more transparent and passenger-friendly practices.

 

The government’s move is expected to impact ancillary revenue streams significantly. For instance, IndiGo reported a 13.6 per cent year-on-year rise in ancillary revenue to Rs 2,446.2 crore in the October–December quarter of FY26, outpacing the 6.2 per cent growth in passenger ticket revenue, reflecting the growing reliance on add-on services to support profitability.