The aviation regulator says selling cheap fares is a malpractice that may harm the industry
New Delhi: In an unprecedented move, India’s aviation regulator has asked budget airline SpiceJet Ltd to stop offering cheap fares to passengers, calling it a malpractice that may harm the industry, drawing flak from an air passengers’ association.
The directive by Directorate General of Civil Aviation (DGCA) came after SpiceJet launched a sale on the lines of the erstwhile Air Deccan for the first time in seven years on Tuesday, allowing passengers to book seats on its routes for prices ranging from Rs1 to Rs1,499.
“The director general is satisfied that SpiceJet has established a predatory tariff ranging from Re1 to Rs1,499 inclusive of fuel charge which violates the provisions contained in the sub-rules...therefore SpiceJet is hereby directed to stop offering such tariffs with immediate effect and comply with the direction," DGCA officer Lalit Gupta wrote in a letter to SpiceJet’s chief operating officer Sanjiv Kapoor Tuesday.
A copy of the letter was reviewed by Mint.
Gupta argued that the DGCA rules say “every air transport undertaking" shall “establish tariff having regard to all relevant factors including cost of operation, characteristics of service, reasonable profit and the generally prevailing tariff." Selling cheap seats amounts to a malpractice, Gupta wrote.
“This is clearly an attempt to deceive the travelling public and comes under the category of malpractices which will distort the civil aviation market," he wrote.
An air passengers’ association slammed the DGCA order.
“What authority does DGCA have in controlling the prices especially at a time when airlines were offering such expensive fares and the same DGCA could not control prices when the airlines were charging exorbitant prices. They were not able to do anything," said Sudhakar Reddy, national president of Chennai-based Air Passengers Association of India (APAI).
Reddy said he had been receiving complaints from people who had been charged a return fare as steep as Rs84,000 for a flight to Delhi from Chennai on business class and Rs23,000 for a Chennai-Mumbai economy class ticket.
Reddy said DGCA was “an agency to look into safety, airworthiness". “It has no powers to control commercial issues. This is certainly not one of those areas," he said.
SpiceJet disagreed with DGCA. The airline said it was following a model adopted by some of the world’s biggest low-cost airlines like Southwest Airlines Co., Ryanair Ltd and EasyJet.
“We do not believe that our pricing was predatory in nature since it is with the intent to stimulate demand, and is not intended to reduce or eliminate competition; with a market share of 20%, we are not in a position to be predatory," the airline said in a statement.
“Airlines such as AirAsia and Tiger Airways have had numerous fare sales, including in the recent past, including for their flights originating in India where the base fare was Rs0/- (excluding fees and taxes, but including fuel surcharge)."
In the past, domestic airlines in India have also come up with similar offers where they charged Re1, SpiceJet added. SpiceJet offered a Delhi-Mumbai one-way economy ticket was going for Rs864 starting from the first week of July. Before the sale, the ticket for a three-month advance booking was going for Rs3,900. The ticket usually sells for Rs10,000 one way for immediate travel.
More people visited the SpiceJet website this time as rival airlines such as IndiGo, GoAir, Air India and Jet Airways (India) Ltd did not immediately announce a sale to match the discounts. IndiGo, Jet Airways, Air India, GoAir declined to comment on the sale.
Before it was taken over by Kingfisher Airlines Ltd in 2007, Air Deccan offered such cheap fares. “It should never have stopped," said Air Deccan founder G.R. Gopinath. “The reason it stopped was because of FIA (Federation of Indian Airlines) where airlines got together and they fixed the price by putting a minimum floor price. That’s why I had walked out of it."
India’s air travel market grew only 4% in 2013 led by high fares compared with the double-digit growth in the years that followed the launch of low-cost airlines in 2003.
AirAsia India, which plans to start services this fiscal and is in the process of obtaining and airline licence from DGCA, has said it will offer discounted fares.