Government’s decision to cap air fares hurting air travel: CAPA

The government’s decision to temporarily fix a cap on air fares following the resumption of domestic passenger flight services in a graded manner is impacting air

The government’s decision to temporarily fix a cap on air fares following the resumption of domestic passenger flight services in a graded manner is impacting air travel demand as airlines are unable to offer tickets at lower prices to customers, observed aviation think tank Centre for Asia Pacific Aviation (CAPA).

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CAPA, a consultancy and advisory firm specialising in aviation sector, said adopting such a mechanism takes away an airline’s flexibility to charge fares at a lower rate when demand is on the lower side. “The temporary fare caps by the regulator are impacting demand. The pricing restrictions mean that the airlines have less flexibility to offer lower fare to stimulate demand,” CAPA said in a report on Friday.

Airlines fix ticket prices based on the prevailing demand and also roll out various low fare offers and schemes to stimulate demand, particularly in low travel seasons. The period between January and March as well as July and September are considered to have low travel demand.

At the time of resumption of domestic commercial flights after a break of two months on May 25, the ministry of civil aviation (MoCA) had categorised all domestic routes into sectors (bands A to G) based on flight durations. This system will remain valid till August 24.

“The impact (of the fare cap) may be greater in the second quarter of this financial year as demand is historically weak during this period (July-September). Continuing with price control beyond August would be a strategic mistake by the regulator which could further harm the financials of airlines,” CAPA added.

A senior airline executive, however, did not agree with CAPA’s report while another executive said the report seems to be partially true.

The senior airline executive said, “The government caps are fair and reasonable. Airlines otherwise will go down to ridiculous low level of fares to get passengers.” The official said that going forward the potential for domestic travel is looking good and added that the fare caps would help the market be stable in terms of pricing.

Another executive of a low-cost airline said, “Though the report is partially correct, demand for travel is currently low due to fear of Covid-19 and the mandatory quarantine days imposed by different states. Hence, even if the airlines are able to lower the cost of tickets, it is unlikely to attract travellers.”