Indian government caps air fares for three months in unprecedented move

Domestic flights in India will have a cap on fares with both an upper and lower limit for three months when flights resume 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 due to pent-up demand, the lower limit will help ensure that financial viability of airlines does not suffer amid high costs, Puri said at a news conference.

This is the first time that the Indian government has implemented such a measure for an extended duration. Caps on airfares were generally restricted to about a few days during calamities like floods, officials at private airlines said, adding that they are still to receive an official communication from the government on the move to cap fares.

So far, the Telecom Regulatory Authority of India (Trai) has enforced tariff rules for the broadcasting sector. The regulator also initiated a process last year to ascertain the need for a minimum or floor price for mobile calls and data.

Puri said the domestic flights will connect all cities from next week, though airlines will be allowed to use only one-third of the capacity approved for this year’s summer schedule. “The number of flights will gradually be increased (after 24 August),” he said. The government has created seven major fare sections/zones, based on the distance and time taken to cover the distance.

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, 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.

“With the capacity falling from 100% to 30%, fares could have skyrocketed. Once we exit the three-month period (on 25 August), we can have a market-based system or a pre-covid kind of arrangement,” Puri said.

Explaining the mechanism of a lower and upper fare bracket on various routes, he said the move will mean that the lowest fare between Delhi and Mumbai, the busiest route in the country, will be capped at ₹3,500 and ₹10,000 at the higher end.

Airlines will however have to make available 40% of total seats in an aircraft at less than the mid-point price between the highest and lowest fares, aviation secretary Pradeep Singh Kharola said, adding that this is a temporary measure.

“We are ensuring that the fare does not go out of hand and at the same time, it is viable for airlines also. It is only for the period of scarcity,” he said.

Airlines are elated with the government decision but expect demand to surge initially followed by an elongated slump due to covid-19 related implications, two senior airline officials said.

“If intrinsic demand is muted, then the minimum fare will help in general and maximum fare will not be that relevant. However when demand is muted and minimum fare is higher than what it would otherwise have been, the weakest or least attractive player suffers the most as they cannot use pricing as a tool to steal market share,” said a senior official at a no-frills carrier.