India’s civil aviation minister Hardeep Singh Puri on Tuesday blamed predatory pricing by airlines for the sustained losses in the industry. However, he ruled out any regulatory intervention for now and said that airlines are regularly called and counselled whenever instances of predatory pricing are noticed.
Under current regulations, it is the prerogative of airlines to establish their process of determination of airfares. As such, the government does not interfere in their commercial affairs.
“We have noticed instances where airlines are pricing their tickets at a level which is lower than their operational cost. Such measures may benefit in the short term but in the longer term they hurt the entire industry,” Puri said, citing the example of the popular Delhi-Mumbai sector in which he said price haven’t gone up in the last 10 years.
“The fare price in Delhi-Mumbai sector is similar to what it was 10 years back. That certainly isn’t rational pricing,” Puri asserted.
SpiceJet owner Ajay Singh last month had raised a similar argument saying that competitive pressure forcing a low-fare regime will lead India’s aviation sector to a bloodbath. Drawing a comparison with India’s telecom firms Singh said, “It is important that we learn lessons from telecom sector. We need to take steps urgently and stop selling tickets at prices that don’t even cover operating costs.”
India’s telecom companies have been reeling under stress due to intense competition which has forced them to charge low tariffs. Adverse regulatory and judicial orders have only added to the sector’s woes, with Bharti Airtel and Vodafone posting their largest losses ever. The industry expects Vodafone India to shut down due to its precarious financial state.
According to aviation consulting firm CAPA, Indian airlines are expected to lose over $600 million (Rs 4,273 crore) in FY 2019-20 as compared to a previous estimate of full-year profit of $500-700 million ( Rs 3,561-4,985 crore).
Two of the largest airlines in India, InterGlobe Aviation Limited-operated IndiGo and Ajay Singh-controlled SpiceJet, which are both listed on the BSE, reported huge losses during the September quarter. SpiceJet plunged to a consolidated loss of Rs 461.22 crore in the three months to September 30, from a year-ag0 net loss of Rs 382.72 crore. Meanwhile, IndiGo plunged to a wider-than-expected quarterly loss during the September quarter with higher maintenance and overhaul costs outweighing the increase in passenger traffic. The country’s largest domestic airline posted a loss of Rs 1,062 crore in the September quarter (Q2) compared with a loss of Rs 652 crore a year ago.
However, Puri said that as of now the government is not looking for any regulatory intervention to stop the practice of predatory pricing. “Whatever has to happen, it has to be driven by market forces and the industry,” Puri said when asked if the government is planning to fix a minimum floor price for airline tickets. The minimum floor price is a regulatory threshold under which airline can’t price their tickets. “I have set up a fare-monitoring cell within the DGCA. We regularly call airline executives and advise them whenever we notice such instances. This has to happen within parameters of deregulation,” he said.
Source: Business Standard