Indian airlines such as IndiGo and Vistara are asking the government to remove the cap on airfares, as the price of jet fuel ramps up.
Why do airlines want the cap removed?
There are several reasons airlines are asking that the cap on ticket pricing be removed. Firstly, the price of jet fuel (ATF) has significantly increased this year, in part due to the crisis in Ukraine. The price is currently at Rs 1,12,924 a kilolitre, more than 33% higher than at the start of the year. Rising fuel prices have forced airlines worldwide to make difficult decisions on how to absorb the cost, with some choosing to raise airfares. But whilst the caps are in place, this option remains closed to Indian carriers. An airline official told Business Standard:
“Airlines price tickets depending on pricing history, which determines how much the customer and the market will bear. Pricing also differs depending on which group the passenger belongs to – leisure or business. The way each group is priced is very different. The limit placed by the government is hurting that ability.”
Airlines are also hoping that the removal of fare caps will help them recover from Covid losses. A spokesperson for IndiGo said:
“Owing to the constantly rising ATF costs, and recovery of the Indian Aviation sector, we believe that the Government can stimulate the aviation sector by completely doing away with fare caps. It will be helpful in expediting recovery from the pandemic’s severe effects while making air travel affordable for Indian travellers this summer season. These restrictions were implemented for a valid reason, but now would be a good time to relax them,”
Why was the fare cap introduced?
The fare cap was introduced during the pandemic and was meant to benefit both airlines and passengers alike. The measure was introduced alongside restrictions on flight capacity at the height of the lockdowns. Last October, the capacity restriction was dropped, but instead of removing the fare cap, the law was adjusted instead: now, the cap only applies to prices within 15 days of departure.
The cap doesn’t just affect the maximum ticket prices however, it enforces a minimum limit as well. This helps companies with weaker balance sheets like SpiceJet and Go First, who could be outpriced by beefier airlines. These smaller airlines are hoping that the fare cap will hang around a little longer, whilst their businesses continue to recover from Covid losses.
When will a decision be made?
A meeting between the government and airline CEOs is likely to occur next week, Business Standard reports. A senior government official told the paper the final decision will be made by Jyotiraditya Scindia, India’s Minister of Civil Aviation. Since the law was originally introduced as a Covid measure, the real question remains not whether it will be repealed, but when. With Covid fatalities past their peak, and fuel prices rising, now might be as good a time as any.
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