Airlines accept 3-month fare cap, but wish govt didn’t fix pricing

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Airline executives were divided over the government capping air fare for the first time since its deregulation. While the broad opinion used to be that the fare floor constant by the government used to be fair considering the current demand, they fear such interventions may develop into more prominent.


“The lower cap set by the government appears to be fair. In July, it’s a dream for any revenue management guy as a way to charge Rs 4,000 in the Delhi-Mumbai route,” said an executive of a


low-cost airline.


Domestic flights will have a cap on fares with both an upper and lower limit for three months when flights renew on Monday, Civil Aviation Minister Hardeep Singh Puri said on Thursday. While the upper price limit is aimed at preventing any sharp rise in fares because of pent-up demand, the lower limit will help ensure financial viability of airlines does not suffer amid high costs.


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“According to our analysis, fares have a lower floor and cap than the one prescribed by the government. Airline fares are at a reduction of 0-55 per cent on median fare basis and 32-58 per cent on average fare basis. Thus, we imagine that temporarily regulated fares would no less than not have an effect on whether not boost the current pricing of airlines,” analysts at Motilal Oswal said.


Then again, the industry fears that despite the government saying that the cap and floor will be for three months, it’s going to extend it arbitrarily. “The aviation sector has suffered a massive financial trauma. Market-based pricing is the most efficient medicine to nurse airlines back to health quickly,” said Anand Stanley, chairperson, civil aviation committee, Ficci.


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A second airline executive, on the other hand, said: “People are desperate to shuttle no less than in the initial few days. And, they’re scared to shuttle in train. So, I think there is probably not any problem with the floor.” Then again, he said that when demand is muted and minimum fare is higher than what it is, the weakest or least-attractive player suffers the most because they cannot use pricing as a tool to steal market share.


Flights between cities that are under 40 minutes have been classified under section one, while those under 40-60 minutes are under section two. Section three consists of destinations 60-90 minutes apart by flight, section four comprises cities 90-120 minutes apart, and section five consists of cities 120-150 minutes apart. Destinations between 150-180 minutes and 180-210 minutes have been classified under sections 6 and 7, respectively.

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