The government on Thursday extended its control to cap airfares till 31 March while also increasing the lower and upper fare caps by anywhere between 10-30%, a step which could potentially benefit the largely loss making domestic airline sector.
For instance, for flights which are of duration of less than 40 minutes the lower fare cap has been increased to ₹2,200 from ₹2,000 whereas the cap on the highest chargeable fare under the same band has been increased to ₹7,800 from ₹6,000, said an order by the ministry of civil aviation (MoCA).
Fare caps were put in place after domestic air operations were allowed to resume by the government in May last year following two months of grounding of flight operations to contain the covid-19 pandemic. Fare bands for flight tickets are currently classified under several bands (A to G), which are based on duration of flights, according to which maximum or minimum fares are charged.
While fare hikes are likely to bring some respite to the industry which has been reporting losses for four consecutive quarters due to the pandemic, most airlines had asked the government to do away with fare caps and let ticket prices be decided by free market economics. The government has maintained that airfare bands are temporary.
{{/usCountry}}While fare hikes are likely to bring some respite to the industry which has been reporting losses for four consecutive quarters due to the pandemic, most airlines had asked the government to do away with fare caps and let ticket prices be decided by free market economics. The government has maintained that airfare bands are temporary.
{{/usCountry}}The price band on domestic flights are expected to be discontinued soon as flight services are reaching pre-Covid levels in the country, civil aviation minister Hardeep Singh Puri informed the Rajya Sabha on Wednesday.
The Economic Survey 2020-21, which was tabled in the Parliament last month, said that India’s air passenger traffic is expected to reach its pre-covid level during early-2021.
As things stand, Indian airlines are allowed to operate upto 80% of their pre-covid capacity. Most airlines are however deploying much lower capacity as passenger numbers slowly bounce back to pre-covid levels.
India’s domestic air passenger traffic, which has been rising month on month, saw a 3.5% sequential growth in January with 7.6 million passengers travelling on domestic routes, credit rating agency Icra said in a statement on Monday. Although, the figure reflects a significant 41% decline from a year earlier.
Airlines deployed about 71% capacity in January, rising from 67% and 59% capacity deployed in December and November, respectively, Icra said.
According to Industry experts, given the current state of affairs of the aviation industry and the demand scenario, the benefits of the price hikes could be limited to only a few sectors and routes.
“In a situation where overall demand is still less than supply, the fare cap being raised will not really make much difference, except on routes and flights where there is more demand than supply,” said a senior industry official, under condition of anonymity.
“Increasing the minimum fare floor may reduce demand on the margin and that will hurt the players perceived as “less attractive” and benefit the stronger players,” the person added.
InterGlobe Aviation Limited-operated IndiGo leads most other domestic airlines in terms of market share. IndiGo recorded a 53.9% market share during December, according to the latest monthly data made available by civil aviation regulator Directorate General of Civil Aviation (DGCA). In comparison, its closest competitors SpiceJet Ltd recorded a 13% market share in December, while Air India Limited recorded 10.2% market share during the same period.
InterGlobe Aviation Ltd, India’s largest domestic airline, reported a fourth straight quarterly loss in the December quarter, even as the airline’s net losses narrowed to ₹620.14 crore during the December quarter, as compared to ₹1,194.83 crore losses in the quarter to September. IndiGo had reported a profit of ₹495.97 crore during the December quarter of the previous year. While its rival SpiceJet Ltd reported a loss of ₹66.78 crore for the December quarter, also its fourth consecutive quarterly loss.