Labile Air Fares

The real task before the Indian carriers would be to ensure that in crafting the fare structure, the airline is able to achieve a healthy balance between welfare of air travellers and financial imperatives of the airline

Air fares in India are inclined to be somewhat irrationally labile, skyrocketing in the holiday season to as much as 200 per cent of the normal figure. This is witnessed during every holiday season which is also the time for upswing in leisure travel. Thereafter air fares drop to unrealistically or sometimes even to ridiculously low levels in the lean season. Earlier in January this year, SpiceJet offered a window of 72 hours during which one could book travel at a base fare of Rs. 1 for a flight between February 1 and April 30, 2013. This is usually the lean period during which leisure travellers are few, resulting in large number of seats remaining unsold. IndiGo Airlines followed with a similar offer.

The bizarre fluctuation of air fares especially in the recent past, has often left the air traveller bewildered and confused. This has generated a debate on whether or not air fares in India need to be regulated by the government. Opinion on the subject is clearly divided. In an effort to bring about better transparency in the pricing of air tickets, the Ministry of Civil Aviation and the Directorate General of Civil Aviation (DGCA) are insistent on airlines placing in public domain through their websites, the basis of determining air fares. The response from airlines is hardly ameliorating as the information made available in the public domain is beyond the capability of ordinary mortals to comprehend and hence is of little value to most air passengers.

Determination of airfares by airlines in India is a complex affair. It is sensitive to a host of factors such as imbalance in demand and supply, sharp variations in input or operating costs, intensity of competition amongst carriers to gain market share, quality of services offered and taxes imposed by the government. Most analysts are of the view that regulating a competitive market is not a healthy practice. In the largest and most competitive air travel market in the world, the US, the airline industry including air fares was deregulated over four decades ago. Europe followed suit two decades later. Back home, Vijay Mallya, the owner of Kingfisher Airlines and once upon a doyen of the Indian airline industry, in a conference on civil aviation in Delhi, rather emphatically voiced his opinion opposing “regulation on airfares, whether it is in upper or lower band”. He went on to add that “the more important thing is that the government should introspect and look at policies related to taxation”. In December 2011, the International Air Transport Association had also advised the Government of India not to regulate fares as it would render the Indian airline industry unattractive for any kind of foreign investment. The philosophy of the industry is aptly summed up by Kapil Kaul, CEO, Centre for Asia Pacific Aviation (South Asia), thus: “In a competitive market like India, market forces are the best bet for regulation”.

However, feeling amongst some quarters is that there is a case for a degree of regulation and oversight to safeguard the interests of air travellers in India. Even the supreme law-making body, the Indian Parliament, has been seized of the problem of abnormal hike in air fares, something that they describe as “unreasonable”. The law makers are also of the collective view that “most airlines operating in the country have been overcharging passengers by increasing the air fares arbitrarily”. A parliamentary panel has even sought a probe against the defaulting carriers and recommended that any increase in ticket prices in the future ought to be approved by the aviation regulator, the DGCA. With the regulator itself in a state of flux, its effective involvement in the regulation of air fares appears to be outside the realm of possibility at this point in time.