AIRFARES SET TO GO UP AS CENTRE RAISES CAP BY 30%

The fare caps have been extended by as much as 30% to offset rising fuel prices

NEW DELHI: The government on Thursday extended its control to cap airfares till March 31 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.

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.

As things stand, Indian airlines are allowed to operate up to 80% of their pre-covid-19 capacity. Most airlines are, however, deploying much lower capacity as passenger numbers slowly bounce back to pre-covid levels.

“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.

NEW DELHI: The government on Thursday raised fare caps for airlines by as much as 30% to offset rising fuel prices but extended the curbs on setting fares till March 31 amid tepid travel demand because of the pandemic.

Passenger fares will now rise between 10% and 30% effective Thursday, depending on the duration of the flight, the civil aviation ministry said in an order.

For short-haul flights with a duration of less than 40 minutes, the minimum fares have been raised to ₹2,200 from ₹2,000. The maximum fare that an airline can charge in these routes has been increased to ₹7,800 from ₹6,000, the ministry said.

There are six other bands with separate minimum or maximum fares.

While raising fare caps will provide some relief to airlines, it may not be enough to fully compensate for the increase in airlines’ fuel costs, which have nearly doubled since the cap was put in place in May last year after domestic air operations were allowed to resume. Airlines have been demanding that restrictions on setting fares be lifted.

“Fuel costs have more than doubled since May last year when the government put fare caps in place, so there was a need for a fare hike,” said Ameya Joshi, an aviation analyst and founder of aviation blog Networkthoughts. “However, the ideal scenario is to not have any capacity or fare caps and let markets drive both.”

The caps were introduced to prevent price gouging by airlines during a crisis, while also preventing them from undercutting each other amid a slump in travel demand.

The government has maintained that the price caps are temporary. The price bands 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 told 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 in early 2021.

Indian airlines are now allowed to operate up to 80% of their pre-covid capacity. Most airlines are, however, operating at a much lower capacity as passenger demand is significantly lower than pre-covid levels.

Still, domestic air passenger traffic has been rising month on month.

In January, the number of air passengers rose 3.5% to 7.6 million from the preceding month, credit rating agency ICRA said on Monday.

The January figure, however, represents a 41% drop from a year earlier.

Airlines operated at about 71% capacity in January, rising from 67% and 59% capacity deployed in December and November, respectively, ICRA said.

Given the current demand scenario, the benefits of the price hikes could be limited to only a few airlines and routes, according to industry experts.

“Airlines, which have a higher fleet and inventory, will benefit from the increase in fare caps as they can control fares,” said Mark Martin, chief executive of Martin Consulting Llc. “Although fare caps have been extended till March 31, market dynamics and competition between airlines will overall keep airfares in check as airlines will compete for the same set of passengers.”

Interglobe Aviation Ltd-operated 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% share in December, while Air India Ltd had a 10.2% share during the period.

Interglobe Aviation reported a fourth straight quarterly loss in the December quarter, although the airline’s loss narrowed to ₹620.14 crore from ₹1,194.83 crore in the three months ended 30 September.

Indigo had reported a profit of ₹495.97 crore during the December quarter of the previous year.

Rival Spicejet Ltd reported a loss of ₹66.78 crore for the December quarter, also its fourth straight quarterly loss.

INDIAN AIRLINES ARE ALLOWED TO OPERATE UP TO 80% OF THEIR PRECOVID CAPACITY