Mint Explainer: Can airfares be regulated?

New Delhi: New civil aviation minister Kinjarapu Rammohan Naidu has said he plans to make airfares affordable. Mint explains the inflationary pressures on airfares, how they are designed, and whether the government can intervene.

Indian market

India’s aviation market is highly seasonal. Airfares rise when demand soars. Domestic and international air traffic for the country is at its maximum from May until mid-July. The onset of summer vacations across schools and colleges results in a surge in leisure travel during this period.

Travel sentiment then becomes weak through September, translating to leaner airfares as schools and colleges reopen and the monsoon season restricts movement. Air traffic then picks up again in October and fares rise with the onset of festivals, the wedding season, and the winter holidays. This momentum continues until mid-January, before airfares and demand slow down until April.

De-regulation of fares

With the repeal of the Air Corporations Act in March 1994, tariff fixation was deregulated and airlines were free to set reasonable tariffs under the provisions of sub-rule (1) of Rule 135 of the Aircraft Rules, 1937. Instead of a mechanism of fixed ticket prices earlier, the new framework allowed airlines to determine fares on the basis of factors such as cost of operations, characteristics of services, reasonable profit and the generally prevailing tariff.

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As a result, airfares are dynamic and follow the principle of demand and supply. Fares are also dependent on factors such as the number of seats already sold on a flight, fuel prices, competition in the sector, the season, holidays, festivals, long weekends, and events (sports, fairs, contests).

Watch on fares

Fares are neither established nor regulated by the government. Airlines are free to fix reasonable tariffs, as per the established provisions.

However, the Directorate General of Civil Aviation has put in place regulations that are aimed at ensuring reasonable airfares. These include a mandate for airlines to display the break-up of fares when a ticket is booked. Airlines are also required to display on their respective websites route-wise tariffs across their network in various fare categories and the manner it is offered in the market.

In addition, the aviation regulator has a unit that monitors airfares on certain routes to ensure that airlines do not charge fares beyond the range declared by them. This tariff-monitoring unit looks at fares on 60 routes on a random basis and monitors fares for 30 days, 15 days, 7 days, 3 days, 2 days and 1 day ahead of a scheduled flight.

Latest remarks

Naidu, a third-time member of parliament from Andhra Pradesh’s Srikakulam, took charge as Union minister for civil aviation on 11 June. Naidu is the national general secretary of the Telugu Desam Party, an ally of the Bharatiya Janata Party in the National Democratic Alliance government, which came to power at the Centre on 9 June.

“Right from Covid, air travel has taken a huge hit. There have been some fluctuations in air prices, and they haven't been stable since then. As a passenger, I have been observing this for the last four years; that is a concern. I need to have review meetings. I want prices to be affordable for common customers,” Naidu said after taking charge.

Regulated airfares?

The civil aviation sector framework allows regulatory bodies to establish fare levels in certain circumstances. After the extraordinary shutdown of air traffic for two months during the Covid-19 pandemic, India resumed air travel in May 2020 with a lower and upper limit on airfares. This was scrapped only in September 2022, when demand recovered.

“That was an extraordinary situation. The government and the regulator can always enhance surveillance on fare levels and ensure that airlines are adhering to the tariff structure notified by them on their websites. Under normal circumstances, there is no provision for a regulator to set any limits on fare levels,” an airline executive said.

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Soaring demand for air travel and capacity constraints for airlines due to aircraft shortages are also causing airfares to rise, another executive added.

“Increasingly, the demand for air travel is also getting strong for periods such as August-October and January-April, which traditionally witnessed lean travel sentiment. Airlines, here and globally, have to face the challenge of limited capacity for another 1-2 years as supply chain issues persist. This will also have an impact on airfares,” a second executive said.

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