The government is considering a proposal to regulate domestic fares so airlines cannot charge passengers more than Rs. 20,000 for a one-way economy class ticket.
Besides, the government is also looking to fix a lower limit below which carriers will not be allowed to offer tickets to prevent airlines from under-cutting each other through “special fares”.
The move is seen as a direct fallout of the spate of cancellations following the crisis in budget carrier SpiceJet that has led to skyrocketing domestic air fares in the peak holiday season.
Experts, however, cautioned that capping prices could hurt passengers by pulling up the average fares as airlines could be tempted to offer tickets at prices around the maximum cap.
“Fares are determined by the simple principle of demand and supply. If fares are down during the lean season, airlines have every right to make money during peak season. Fixing the higher limit would actually result in fares going up,” said Rajji Rai, chairman of Swift Travels.
An internal note prepared by the civil aviation ministry, which put forward the proposal, said there had been severe criticism from MPs, tour operators and passengers on airlines charging very high fares “on the immediate day preceding travel and date of travel”, also known as spot fares.
The industry frowned upon the proposed move arguing that regulating fares could hurt the already delicate companies’ finances.
“Any move by the government to regulate fares will result in more airlines shutting down,” said a CEO of a budget carrier.
The government, however, thinks otherwise.
“There is a need to fix a cap on the maximum airfare of economy class at a reasonable price of around Rs. 20,000 beyond which the airlines should not be allowed to charge… exploiting the passenger’s urgency for travel due to various reasons,” the ministry note said.
The latest move runs contrary to what the ministry said in Parliament when it told the Lok Sabha on Monday that regulating air fares wasn’t allowed under current laws.
“Airfares are not regulated by the government. Under the provision of sub rule (1) of Rule 135, Aircraft Rules 1937, airlines are free to fix reasonable tariff,” minister of state for aviation Mahesh Sharma said in a written reply to Lok Sabha on December 22.
Some tour operators, however, are batting for capping spot air fares.
“There is definitely a need to regulate fares. Spot fares for domestic destinations are often higher than those for international destinations,” said Subhash Goyal, president of Indian Association of Tour Operators.
The government wants the proposed minimum fares to be fixed by a formula based on airlines’ cost structure, including current and anticipated fuel costs, among others.