Up in the air

Little on aviation policy, more on backdoor price caps

While the aviation policy which would include rules to allow new airlines to fly overseas or to find ways to incentivise the large aircraft maintenance and repair business—most Indian airlines use MROs in Singapore instead of in India—continues to hang fire even after the Modi government being in power for more than two years, the ministry’s preoccupation with caps on air fares continues. Though aviation minister Ashok Gajapathi Raju has been quoted as saying putting a cap could be more har mful than beneficial—he even cited a study done by the ministry which showed the so-called surge in pricing was limited to less than 2% of the tickets—the moves introduced by the Directorate General of Civil Aviation (DGCA) over the weekend are essentially a form of backdoor caps. The DGCA wants curbs on airline charges that include cancellation fees, excess baggage charges along with greater compensation in case a passenger is denied boarding. Much of this is related to the sharp hike in cancellation charges a few months ago—while IndiGo and SpiceJet raised their cancellation charges to a flat R2,250, Go Air hiked it to R2,225. According to the new rules, the cancellation charges are not to exceed the base fare and excess baggage rates are to be capped at R100 per kg as compared to the R300-350 most budget airlines charge. Strict rules have been put in place for cancelled flights and offloaded passengers as well.

If the minister had carried out the same exercise that he did for air fares, he would have known that during April, out of 79.32 lakh flyers, only 1,149 were offloaded, and flight cancellations affected 5,025 passengers during the month. And, in any case, if airlines are to make less from cancellations and excess baggage, this cost will be passed on—to everyone that flies. Apart from the fact that governments/regulators have no business regulating tariffs/fares when there is so much competition in the market, if the government is so keen to lower fares to ensure the aam aurat can fly more—it will be at the cost of the Railways though—surely a better way would be to work on lowering aviation fuel prices that comprise 45-50% of operating costs for airlines. Putting this on the ‘declared list’ would mean state governments can’t levy high VAT on this and would bring Indian fuel costs to global levels.