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Airfares drop after the civil aviation ministry's intervention. But was that necessary?

Prices are determined by airlines based on market factors such as the capacity available, demand, and seasonality, following global practices. The ministry has more pressing issues to resolve in the sector, say aviation experts

Anubhuti Matta
Published: Jun 9, 2023 12:07:49 PM IST
Updated: Jun 9, 2023 12:35:37 PM IST

Airfares drop after the civil aviation ministry's intervention. But was that necessary?In March 2023, the DGCA had approved operations of 22,907 flights per week for the 11 airlines that operate on the domestic sectors in the summer schedule. However, only about 2,900 daily are currently being operated. Image: Indranil Mukherjee/AFP

In recent days, airfares on specific domestic routes experienced a significant increase, especially for last-minute bookings. Experts attributed it to the sudden scarcity of flights caused by Go First’s insolvency and high demand during the summer travel season. 

Acknowledging that the surge stemmed from an unexpected imbalance between demand and supply in a meeting with the Airlines Advisory Group on June 5, Civil Aviation Minister Jyotiraditya Scindia asked airlines to develop a system that would ensure reasonable airfares. This was a request, especially for routes served by Go First, which used to carry eight to nine lakh passengers a month but had to cease operations on May 3 as a result of a severe fund crunch.  

Following the meeting, on June 8, the minister announced that airfares on certain routes from Delhi have been considerably reduced, by 14 percent to 61 percent, as per a report by ANI.  

Online travel aggregators (OTA) did notice the decline in spot airfares in the past two days, but aviation experts say the ministry’s intervention wasn’t needed.  

Overlooked matters  

Airfares are determined by airlines based on market factors such as the capacity available, demand, and seasonality, following global practices.  

In the past month, the increase in spot fares ranged between 4 percent and 80 percent in certain sectors, as per data compiled by OTA Ixigo. Another OTA, Cleartrip, registered a sharp spike in fares, especially for travel within D15—booking 15 days before travel—and overall fares were up by 18 percent in May over April for domestic travel, informs Gaurav Patwari, vice president-air category.

“The spot fares in May rose significantly primarily due to a reduction in capacity thereby creating an imbalance in demand and supply,” Patwari says. “The overall domestic capacity saw a decline of around 4 to 5 percent in May sequentially,” he adds.  

The trend of airfares increasing has been normal ever since the loosening of the Covid-19 restrictions, with airlines wanting to make up for the losses suffered and to meet the high costs of air turbine fuel owing to the Russia-Ukraine war.  

However, what changed in recent months is that the market demonstrated a remarkable recovery with daily (domestic) passenger numbers exceeding pre-Covid-19 levels.

Also read: Go First has flown into heavy turbulence. Can it fly out of it now?

According to the DGCA, domestic air traffic was at an all-time high on April 30 this year, with 4.5 lakh passengers flying on a single day. Pre-Covid-19, the average daily domestic passenger number was 3.98 lakh.  

“In market dynamics of seat capacity and passenger demand mismatching, the airfares are bound to go up,” says Jitender Bhargava, former executive director of Air India and an aviation consultant. “The actual reason behind the current problem is that most airlines aren’t operating optimally,” he adds.   

In March 2023, the DGCA had approved operations of 22,907 flights per week for the 11 airlines that operate on the domestic sectors in the summer schedule, which starts on the last Sunday of March. That comes down to 3,272 flights per day. However, only about 2,900 daily are currently being operated.  

"The minister and the DGCA acknowledged that when Go First shut down or suspended operations, effectively reducing the number of flights, it led to an increase in fares. The question is, if the number of flights being operated by most airlines is less than the approved number, why is the DGCA refusing to acknowledge that this is also impacting fares? When demand is steadily going up, how can the number of flights go down?” asks Bhargava. He adds, “I’ve maintained that the government has no business of meddling in airfares as it is determined by the market in a deregulated sector. But the capacity certainly comes under the domain of the DGCA and the ministry.”

Four airlines—Alliance Air, Air Asia, Spice Jet, and Vistara—had voluntarily asked for operation of fewer flights in the summer schedule as compared to the winter schedule, informs Bhargava.

“DGCA ought to have sounded the alarm bell at the time of according approval because on the one hand, there is a consistent rise in demand, and on the other, some airlines were wanting to fly less,” Bhargava adds. “At that time, the DGCA and the ministry did not take note of it, so the passengers are now bearing the brunt,” says Bhargava.

Also read: Once the turnaround man, Ajay Singh may now need an external hand—and capital—to pull SpiceJet out of turbulence

But in the face of some events—Go First's suspension, riots in Manipur, and the train accident in Odisha—the airfares went up alarmingly high and that resulted in the intervention of the civil aviation minister to ask airlines for self-monitoring and a road map to reduce airfares.

Air travel and transportation are commanded by demand and supply and this competition is what creates balance, says Mark D Martin, CEO of an aviation consulting firm Martin Consulting, and member of the UK-based Royal Aeronautical Society. India is the fastest-growing aviation market, and while the government should not have any say in airfares, he asks, "Why don't we still have a pricing regulatory controller appellate body for aviation to keep a tab or control pricing when there is a SEBI, TRAI, and AERA for other sectors?” He adds, “The DGCA’s job is not to police, it’s only related to policies.”  

He further argues that should the government have a say in pricing, it should also be ready to cover airlines’ losses.  

“What are they doing to lower the input for airlines? The price of jet fuel is high, airlines are being charged Rs 15,000 a flight under UDAN,” Martin mentions.  

UDAN—Ude Desh ka Aam Naagrik—is a scheme to fund the regional air connectivity project and the civil aviation ministry has been collecting a levy since December 2016.

Previously, it was Rs 5,000 per departure.  

Despite the ministry’s intervention, the overall fares for some sectors are still very high, believes Rajiv Mehra, president of the Indian Association of Tour Operators.  

“The ministry’s intervention is debatable, but I don’t recommend adding a ceiling on airfares. It’s a free economy,” says Mehra. “And the airlines should also follow some discipline, especially in times of emergencies,” he adds.  

Increase in capacity

In the past two days, OTAs like Ixigo have witnessed a drop of 25 percent to 30 percent in spot fares across key routes.  

“It is encouraging to see that the discussions between airlines and the government have paved the way for much-needed relief for all last-minute flyers traveling due to medical or work emergencies," says Aloke Bajpai, group CEO and co-founder of Ixigo.  

Also read: How the Adani Group became India's largest airport operator

But this intervention is a temporary solution that needs a bigger fix, say the aviation experts.  

First, according to Bhargava, “The DGCA should make the airline fly the committed number of flights.” And second, “In the face of calamities when people want to exit the troubled affected areas, airlines should take cognisance of human miseries and instead of being mute spectators to unprecedented increase in fares, airlines should be made to mandatorily augment capacity to match increased demand rather than take the easier way out—of allowing seat shortage and consequent spike in fares,” he adds.  

The next level, says Martin, would be for, “The government to encourage new airlines to come up. We need competition because that leads to better market dynamics," he says. "At the same time, airlines need to understand that the Indian traveler is discerning and price-conscious, so they need to stop playing around with their buying intention." 

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