Indian Government Raises Cap On Domestic Airfares

by Ajay Prakash
Vistara DreamLiner

India’s Ministry of Civil Aviation revised the cap on airfares last Thursday (11 February 2021). With this government order, Airlines can now charge 10%-30% higher fares from the existing levels on domestic sectors.

The Indian government had restarted commercial passenger flights from 25 May 2020, after the two-month suspension due to the COVID19 pandemic. At that time, the government had placed a cap on the capacity as well as the fares. Since then, the government has been regulating the number of scheduled flights that can operate and the fare bands that airlines can charge.

Flight Capacity Increased Gradually

The government increased the flight capacity in stages. Table-1 below gives the scheduled flight capacity increase dates.

Flight capacity increase table

Table 1: Flight Capacity Increase – Data Source DGCA

The DGCA December 2020 order states that –

As per the prevailing situation of COVID-19, the central government…directs the order dated December 3, 2020, shall remain in force till 2359 hours on March 31 or till the date of commencement of summer schedule 2021, whichever is earlier or until further orders”.

The summer schedule begins in the last week of March every year.

It is noteworthy that only Indigo has been able to deploy close to 70% of its capacity so far. Other airlines are not is in a position to increase their flights immediately. The reasons are several – crew and staff shortage, revenue shortage, leased planes not available, and so on.

Passenger Load Factor Remains Low

Passenger Load Factor for India's domestic airline

Fig.1: Passenger Load Factor 2020 – Data Source DGCA

Fig.1 shows the passenger load factor (PLF) for the domestic segment’s leading carriers. The average PLF for the year 2020 was 66.91 for the airlines. The PLF has been continuously improving from May 2020 onwards. However, the capacity and the PLF together decide the passenger traffic. An 80% flight capacity along with a 70% passenger load factor generates passenger traffic equivalent to 56%.

Cap on Price Band Increased

Table-2 shows the old and revised price bands that the Indian government has approved. The price band has been segmented based on the duration of a flight. The lower band has been increased by 10%, whereas the upper band is increased by 30%.

Fare Table as annouced by DGCA

Table-2: Fare Table Cap Increase – Data Source DGCA

Airlines so far have been struggling to reach decent passenger load factors. Ticket sales in the highest fare bracket are in the range of 2% to 10% of their total sales. The few destinations where airlines charge in higher bracket are Leh, Ladakh (ICAO: IXL), Andaman & Nicobar Islands (ICAO: IXZ), and Srinagar (ICAO: SXR). These places are snowbound in the winter months. The others are the islands, where flying is the only option.

Regular scheduled International flights remain suspended in India. The only flights permitted are between country-specific ‘bubble agreements”.

Can the domestic air traffic in India reach pre-COVID-19 levels by the end of March 2021? Please do write your views in the comments section below.

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