NEW DELHI :
Providing airline management with the freedom to take commercial decisions like offering zero baggage fares could generate an incremental $400 million revenue for Indian carriers, aviation consultancy firm CAPA India said in an advisory on Monday.
"One of the reasons that ancillary revenues are not better developed in India is that carriers face unnecessary regulatory hurdles that prevent them from maximising such opportunities. For example, airlines are not permitted to offer fares with zero baggage allowance, or non-refundable fares. And currently they have to comply with fare caps and floors," CAPA India said in an advisory.
Ancillary revenue is revenue derived from goods or services other than an airline's primary product offering which is offering seats to passengers.
The government has currently capped airfares till 25 August after it allowed the resumption of domestic flights from 25 May.
"Airlines in India are primarily focused on the ticket price and neglect ancillaries. This ultimately serves to drive down yields as passengers tend to be more sensitive to the base fare than to subsequent add-ons. Ancillaries generate up to $50 billion of revenue for global carriers and have proven to be key to profitability for those that have a clear understanding of their potential," CAPA India said.
"CAPA India estimates that Indian carriers could generate an incremental $400 million per annum if they were able to offer zero baggage fares. This will also result in passengers with no baggage having access to lower prices," it added.
Airlines globally will lose over $84 billion, the biggest in aviation history, during financial year 2020 due to the covid-19 pandemic and a muted travel appetite, while losses next year are seen at $16 billion, according to the international aviation industry body International Air Transport Association (IATA).
In its advisory, CAPA India said that the introduction of a requirement for airlines to be able to meet expenses for at least three months in the absence of any revenue will have a very positive impact on industry dynamics.
"Most airlines today are technically bankrupt and are starved of cash to be able to operate. This is what drives them to discount fares, locking them in a cycle of instability.Unfortunately, this is not recognised at a policy level," CAPA India said.
"The Ministry of Civil Aviation should consider giving incumbent airlines 12-24 months to comply with this requirement, with the 1.5 months cash threshold to be met within 12 months, and 3 months cash within 24 months. This will be a critical policy decision," it added