In a first, the government is working on a plan to step in and partly regulate airfares by limiting the lowest fares offered by airlines. The move, which is being formulated under section 5 of the Aircraft Act 1937, is aimed at ensuring that carriers do not bleed themselves out of business by undercutting each other’s fare offerings.
The civil aviation ministry is preparing a formula to limit the lowest airfares offered by airlines. The limit, which could change every month, will be decided on the basis of the airlines’ monthly financial numbers and could also vary according to airline.
The trigger for this regulation is believed to be the recent offering by SpiceJet in the domestic sector. The airline had offered 25 per cent of its inventory for travel across India from February to March on a one-way fare of Rs 2,031. Of the one million tickets on offer, the airline could sell 700,000 tickets during the three-day offer. After the offer, the Directorate General of Civil Aviation (DGCA) had reportedly asked the airlines not to get into any fare war to counter SpiceJet’s offer.
Private airlines have termed the government’s move to regulate fares as “an unnecessary intervention”. “We do not need such regulations to protect us. We are in a commercial business and have the right to do whatever makes business sense. Companies like us are also accountable to our shareholders and there is no need for someone else to make rules to safeguard our interests,” said a SpiceJet executive.
A top executive with another low-cost carrier executive, said: “Full-service carriers, who have double the costs of any low-cost carrier (LCCs), should not be allowed to sell below their costs to drive out the LCCs.”
Analysts said that regulatory intervention does not protect consumer interests. “Consumer interest is never protected by any regulatory intervention but by ensuring market forces remain very competitive and dynamic,” said Kapil Kaul, CEO-India of Centre for Asia Pacific Aviation, an aviation consultancy firm.
But, justifying the move, a senior civil aviation ministry official said: “Airlines offer unrealistically cheap fares to gain market share, but end up closing shop in a number of cases. This is a worrying trend and we are planning to limit fares offered at the lower end of the bracket. We are neither trying to regulate fares nor do we plan to, but we need to have a system in place to