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Airlines may hike fares if govt calls for full refund of cancelled tickets

A government charter on passenger rights proposed a full refund of cancelled tickets within 24 hours of booking, among other proposals, which airlines say will upset the pricing strategy.

business Updated: Jun 15, 2018 08:56 IST
Gireesh Chandra Prasad
Gireesh Chandra Prasad
Livemint, New Delhi
Airlines,Ticket prices,Flight tickets
The government proposal for full a refund if a customer cancels a ticket within 24 hours of booking will upset the pricing strategy that enables the industry to provide low airfare.(Reuters File Photo)

Airlines are likely to increase fares across the board by a few hundred rupees per ticket to offset a possible revenue hit from refunding customers for cancelled tickets, as proposed by the government in a draft new passenger rights charter last month.

An executive with a private airline said the proposal for full refund if a customer cancels a ticket within 24 hours of booking will upset the pricing strategy that enables the industry to provide low airfare.

If the provision is retained in the final version that is expected to be implemented in a couple of months, airfare will have to be adjusted to recover the revenue loss due to refunds, said the executive, who spoke on the condition of anonymity.

The government estimates that about 7% of all air tickets in India are cancelled. Assuming that the cancelled seats are not filled at the time of journey, airlines deciding to recover the loss from refunds may lead to an increase in fare in the range of Rs 200-400, a government official said on condition of anonymity.

A 180-seat aircraft, which sells seats at about Rs 5,000, may take a revenue hit of Rs 63,000 per flight if 7% of the tickets are cancelled with full refund.

“This is not an issue of airline finances, but one of public policy,” the government official said. “Passengers may need to cancel tickets at times due to unforeseen circumstances. We have to decide whether a customer should solely bear the cost of cancelling her ticket or should it be borne equally by all passengers as a matter of public policy.”

The government is firm in its commitment to implement what it called the 24-hour lock-in option.

Customers normally do not feel bad paying a bit more for booking a ticket, but would feel the pinch when they lose all the money due to cancellation, said the government official.

“Passenger allowed lock-in option for 24 hours (after booking ticket) in which the passenger can cancel or amend the ticket without any additional charges,” said the draft charter, which was released on 22 May.

An official with a second airline, who did not want to be named, said the lock-in option would unfairly deny some customers the opportunity to avail of seats at low rates as the airfare would have gone up by the time they eventually cancel the tickets.

Emails seeking comments from Jet Airways, SpiceJet and industry body Federation of Indian Airlines remained unanswered at the time of going to press.

Experts said the airline industry is already finding it hard to cope with the increase in jet fuel prices, which is eating into the companies’ margins.

“Increased competition in the aviation market has made it difficult for airlines to pass on the increased fuel cost to passengers and absorbing it has now reached unsustainable levels,” said Kinjal Shah, vice-president, corporate ratings, at rating agency ICRA.

“One needs to see the final fine print of the passenger rights charter to assess its impact on the industry,” said Shah.

First Published: Jun 15, 2018 08:16 IST