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For a smooth flight

The aviation industry must take the government’s cautionary intrusion in the sector in the right spirit. There is little economic rationale for the government to micro-manage airline seats available in the country or their prices.

india Updated: Feb 11, 2013 20:51 IST

Broadly, there is little economic rationale for the government to micro-manage airline seats available in the country or their prices. Since private operators are running airlines, the most efficient regulatory environment would be one where competition is allowed a free run and the watchdog steps in only in cases of deviant behaviour.

So media reports that the civil aviation ministry is sitting on clearances for buying aircraft by one airline and frowning upon bulk sales of low-cost tickets by another can raise alarm among the freemarketwallahs. Yet the regulator is well within its rights to step in if it finds pricing has become predatory or if social obligations of aviation are not being fulfilled.

The hands-off argument is being made in the light of the recent collapse of Kingfisher Airlines, which was followed by a secular rise in fares as supply of seats dried up.

The government points out this is not true. Most airlines are still not flying full and the rise in fares is linked more with increasing costs of inputs like jet fuel. It is in the regulator’s interests that fares decline overall, but not to levels where price warriors savage the industry’s survival. SpiceJet trying to sell a million seats — a quarter of its inventory — at rock bottom rates is indeed an extreme form of price war.

This forces the government to consider imposing price bands. And it is the regulator’s job to see that air links develop in parts of the country that are still not covered, so fleet acquisition plans must conform to the type of aircraft that are suited for these unviable sectors. Indigo wanting to induct 16 wide-bodied jets for long-haul flights must also explain when it intends to get the turboprops that will hop among smaller towns.

The airline industry may see these concerns as disrupting their business plans. But they must realise too that unless the government steps in with forbearance clauses, the industry can do itself much harm. It is no one’s case that aviation should not grow in the country — least of all the government’s — and cautionary intrusion in the free play of market forces must be taken in the right spirit.