Govt removes caps on air fare from Aug 31, says sector poised for growth
Union civil aviation minister Jyotiraditya Scindia said the decision to remove caps on air fare was taken after careful analysis of daily demand and prices of air turbine fuel
NEW DELHI: The government has decided to remove the cap on air fare for airlines from August 31, the civil aviation ministry said in an order on Wednesday. The caps were introduced for airlines more than two years ago in 2020 against the backdrop of limited flight operations due to the Covid-19 pandemic.
“After review of the current status of scheduled domestic operations vis-à-vis passenger demand for air travel in terms of purpose specified in initial order, Order No. 02/2020 dated 21.05.2020 it has been decided to remove the fare bands notified from time to time regarding the air fares with effect from 31,” the aviation ministry’s order said.
The government, however, asked airlines and airport operators to ensure that the guidelines to contain the spread of Covid-19 are strictly adhered to and Covid-19 appropriate behaviour is strictly enforced for air travel.
“The decision to remove air fare caps has been taken after careful analysis of daily demand and prices of air turbine fuel. Stabilisation has set in & we are certain that the sector is poised for growth in domestic traffic in the near future,” Union civil aviation minister Jyotiraditya Scindia said on Twitter.
The ministry imposed the caps on air fare when domestic flight operations resumed from May 25, 2020, two months after their suspension in the wake of the nationwide lockdown imposed to curb the spread of Covid-19. The caps were designed to ensure that passengers were not charge huge amounts due to high demand for seats and to help airlines that were struggling financially due to travel restrictions.
Kapil Kaul, chief executive officer of Centre for Asia Pacific Aviation (CAPA India) welcomed the government decision.
“CAPA India welcomes the decision to remove price floors and caps. This was long overdue. We hope that all carriers will maintain a sensible pricing regime and not revert to loss-leader fares. But yield dilution is inevitable despite airlines wanting a rational market,” Kaul said.
Asked asked if the removal of the cap would lead to an increase in air fares, Kaul said, “ I expect fares to fall because maintaining pricing discipline is very tough and increasing air fares is not feasible given that demand is soft.”
Airlines too supported the government’s decision.
IndiGo, India’s largest airline by fleet size and passengers carried, said: “We are strongly supportive of this move as free market economics are good for both our customers and our investors”.
“We look forward to the response of the removal of fare caps as this will rationalize the demand and supply. The fares will now be regulated by the market and consumers will be presented with competitive prices, hence normalizing it for them. We hope this announcement will help the industry gain momentum in terms of growth and scalability,” Bharatt Malik, senior vice president, flights, at Yatra.com said.