Govt to remove domestic fare caps imposed on airlines August 31 onwards

But aviation executives don't see a major immediate impact

The civil aviation ministry has decided to remove price caps for the domestic aviation sector from August 31, giving airlines flexibility on passenger fares. Though airlines are expected to continue with the current level of fares given costlier fuel, there can be discounts on low-demand routes, flights with poor loads, and new routes, according to airline executives.

Caps on capacity and fares were introduced in May 2020 following the resumption of air travel after the nationwide lockdown. The government allowed 100 per cent capacity deployment in October last year, but it continued with the pricing regulation, citing an adverse cost environment.

“After a review of the current status of scheduled domestic operations vis-à-vis passenger demand for air travel… it has been decided to remove the fare bands notified from time to time regarding airfares with effect from August 31, 2022,” Satyendra Kumar Mishra, joint secretary, civil aviation ministry, stated in his order on Wednesday. 

Under the current policy, a cap on fares is applicable for tickets sold in 0-15 days on a rolling basis. Airlines are free to decide fares for journeys beyond fifteen days.

According to aviation executives, with the withdrawal of fare bands, airlines will have the flexibility to set prices based on demand-supply dynamics. Capacity addition and fuel price will also determine ticket pricing.

Akasa Air is expected to induct two aircraft each month and will have 18 planes by March 2023. In a post-result conference call last week, IndiGo management guided for a 70-80 per cent year-on-year capacity increase over the second quarter of FY22.

“Currently load factors are between 75 per cent and 80 per cent. Dropping fares may not result in a big increase in loads. Amid the current fuel environment, fares may remain similar to the current levels,” said a senior industry executive.

Market leader IndiGo, which was pushing for the removal of fare bands, welcomed the decision. “We are strongly supportive of this move as free-market economics is good for both our customers and investors,” the airline said in a statement.

Airfares in July were 20-30 per cent higher than in January, owing to high fuel prices; overall fares have declined in August on account of various sale offers. Domestic traffic, too, dropped in July on a sequential basis.

Travel companies believe the government announcement shall give momentum to air travel because airlines will have the freedom to price tickets. Aloke Bajpai, co-founder and group CEO of ixigo, said airfares should gradually come down on routes having softer demand.

“Airlines will be able to offer the benefit of lower pricing to customers on sectors/routes where flight loads are comparatively low. Certain flight routes -- for instance between the metros -- are likely to witness a surge in pricing,” said Indiver Rastogi, president and head (global business travel), Thomas Cook India and SOTC.

“We hope this announcement will help the industry gain momentum in terms of growth and scalability,” said Bharatt Malik, senior vice-president (flights), Yatra.com.

No major immediate impact

• Currently, a cap on the fare is applicable for tickets sold in 0-15 days on a rolling basis
• Caps on capacity and fares were introduced in May 2020 following flight resumption after lockdown. The capacity ceiling was removed in October last year
• High fuel prices may keep airlines from slashing fares despite the removal of fare caps
• Airfares in July were 20-30 per cent higher than in January