How will the removal of caps on airfare affect ticket prices?

Have a domestic vacation planned in the coming months? Or, are you planning to fly back home during the festive season? If yes, then this news may concern you. Starting 31st of August, the civil aviation ministry will remove price caps for the domestic aviation sector. This will give airlines flexibility on passenger fares.

Under normal circumstances, airlines would be broadly expected to continue with current levels of fares despite the government deciding to remove domestic fare caps. This is mainly on account of costlier fuel. However, that could change based on whether airlines maintain pricing discipline or not. Airline executives have also told Business Standard that low-demand routes, flights with poor loads, and new routes could see discounts. 

Caps on fares and capacity were introduced in May 2020 as air travel resumed after the nationwide Covid-19 lockdown. While the government allowed 100 per cent capacity deployment in October 2021, it continued with the pricing regulation.  

Under the current policy, the government has been setting minimum and maximum fares for domestic flights that are applicable for up to a period of 15 days from the booking date on a rolling basis. For bookings beyond 15 days, airlines have been free to set their own fares.

Going ahead, capacity addition, the demand-supply situation, and fuel prices could determine pricing. How much you end up spending could also depend on which route you're flying.

Aloke Bajpai, the co-founder and group CEO of ixigo, told Business Standard that airfares should gradually decline on routes with softer demand. Basically, customers can enjoy lower pricing on sectors or routes with comparatively low flight loads. However, another travel agency company executive believes that select flight routes, for instance between Indian metros, were likely to see a surge in pricing.  

When you are travelling also matters. The announcement has come when traffic is lean. One financial daily reported that airline executives believe that a fare war could erupt. Ticket prices will decline if that happens. According to the report, airline executives see airfares falling considerably at least till the end of September due to lower traffic. They do expect airlines to maintain pricing discipline in the festive season that starts from October. However, it is possible that airlines that urgently need liquidity might undercut prices even then.

According to data provided by travel portal ixigo, for tickets purchased about two weeks in advance, the average one-way fares on some of the top domestic routes have decreased by as much as 31%. For example, a Delhi – Mumbai ticket, which cost Rs 7,587 a month ago was down 24% to Rs 5,801 in the second week of August.

Similarly, ticket prices on the Delhi-Goa route were down 20%, and Mumbai-Chennai route fell almost 15%. But the decline came from a high base. It was driven by airlines and online travel aggregators trying to cash in on the long Independence-day-weekend. The fares in July were 25 to 30% higher compared to January this year.