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Indian government caps air fares for three months in unprecedented move – Livemint

While the upper limited has been intrduced to prevent any sharp upward spike in prices due to pent up demand, the lower price limit will help ensure airline’ s viability does not suffer amid high costs, civil aviation minister Hardeep Singh Puri said on Thursday.

This is the first time that the Indian government has implemented such a measure for such a long duration as such measures were restricted to no more than a few days during calamities like flood, officials of private airlines told Mint who added that this decision of the government hasn’t been officially conveyed to them yet.

Announcing the resumption of domestic flight services from next week, Puri said that the flight operations will resume between all cities from next week, albeit with only one third of the capacity approved during the summer schedule 2020.

“The number of flights will gradually be increased (after 24 August),” Puri added.

The government has created seven major fare sections/zones, based on the distance and time taken to cover the distance.

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

However, only one third of the total flights approved during the summer schedule will fly the skies during the upcoming period.

Fares will be regulated for a period of three months, Puri said.

“With the capacity falling from 100% to 30%, fares could have sky rocketed. 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 added.

Explaining the mechanism of a lower and upper fare bracket on various routes, Puri said that 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 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.

Though airlines are escalated with the resumption of flight operations, they expect an initial period of high demand followed by an elongated period of 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-frill carrier.

“Then the demand goes to the stronger players offering that fare, and the least attractive players gets the leftovers and suffers. If demand is high, then the minimum fare does not matter much. But setting a cap will create shortages like we see for trains,” the official added.

However, with covid-19 outbreak muting travel demand creating enough demand for flights will be a challenge.

“Even if we operate these flights, we need to make sure there is enough demand, as we can’t operate empty planes,” said another senior airline official.

Spokespersons of airlines like IndiGio, SpiceJet, Vistara, GoAir, AirAsia India and Air India didn’t comment on the government’s decision to cap fares.

“Technically, the Government does not regulate fares. Fares were deregulated under the Aircraft Act in the 90s. However, the Ministry of Civil Aviation, through DGCA (Directorate General of Civil Aviation), does monitor pricing levels and, at times, has intervened when fares have spiked very high,” said Petrushka Dasgupta, Partner, IndusLaw.

“However, as a part of their guidelines for restart of Domestic Operations from 25th March onwards, they have indicated that they will set ‘floor and ceiling’ levels for fares for the initial start up phase, so that airlines don’t over price on certain routes or engage in predatory pricing,” Dasgupta added.