DGCA removes airfare caps, air carriers express relief

The country's largest carrier IndiGo on Wednesday said the removal of airfare caps will help airlines to increase their passenger load factors by offering discounted fares.

With the government doing away with the airfare limits after more than two years, travel agents are also optimistic that ticket prices are likely to go down in the coming months, especially due to the upcoming festival season. The country's second-largest airline Vistara said it will continue to have a balanced pricing strategy.

The upper and lower limits on airfares on the basis of flight duration were put in place back in May 2020 after the resumption of scheduled domestic air services. Scheduled domestic flights were suspended for two months starting from late March 2020 in the wake of the coronavirus pandemic.

On August 10, the civil aviation ministry announced that airfare caps will be removed from August 31 amid the domestic air traffic being on the recovery path as well as a relative decline in jet fuel prices.

An IndiGo spokesperson said the government's decision to remove airfare caps is a welcome move and will allow airlines to follow dynamic pricing on airfares.

"It will also help airlines increase their passenger load factor by offering discounted fares on respective sectors, offering affordable fares. Overall, this will help airlines sustain with better PLFs (Passenger Load Factors) and benefit consumers as airlines will be able to offer affordable fares," the spokesperson told PTI. PLF is an indicator of seat occupancy on a flight.

About the removal of airfare caps, Travel Agents Association of India (TAAI) President Jyoti Mayal said those in the travel trade expect the airfares to go down in the coming months, especially because the festive season is coming, which means more people travelling.

"India is a huge market and with the continuous development of aviation infrastructure, existing airlines expanding their fleets, and newer/ older ones coming into the business, we hope to see a rise in the competition eventually leading to getting the end user benefitted," she told PTI. TAAI has more than 2,500 members.

A Vistara spokesperson said that in a free market scenario, airfares are an outcome of a multitude of factors, such as the dynamics of demand and supply, the operational environment, seasonality, cost, competition, market sentiment and taxation.

In response to queries related to the removal of airfare caps, the spokesperson said it is difficult to make any specific predictions given the dynamic nature of the business, but it is important that all the players take a holistic approach, which is beneficial for all stakeholders in the aviation ecosystem and to the customer. "As far as Vistara is concerned, we will continue to have a balanced pricing strategy," the spokesperson told PTI.

According to the spokesperson, the decision by the authorities to remove the airfare cap comes at a time when the industry is emerging out of a two-year-long crisis and seeing an uptick in passenger demand for air travel.

With a domestic market share of 10.4 per cent in July, Vistara was the country's second-largest airline after IndiGo, which had a market share of 58.8 per cent during the same period, as per DGCA data.

On passenger traffic, the IndiGo spokesperson said the airline has witnessed a strong recovery this summer holiday season and expects the trend to continue through the festive season as well.

"For Vistara, the demand has been reasonably good. In fact, in July 2022, Vistara registered a domestic market share of 10.4 per cent to become the second largest airline in India and surpassed the 1 million domestic passengers mark for the first time in its history. The surge in demand is mainly driven by VFR (Visiting Family and Relatives) and leisure travel while a gradual increase in corporate travel can also be observed.

"Overall, we are witnessing a significant growth in bookings across our network, which is quite encouraging and we hope the demand continues to increase going forward as well," the airline spokesperson said.

In July, there were more than 97 lakh domestic passengers and a total of 6.69 crore people travelled on domestic flights in the January-July 2022 period, as per DGCA data.

On August 10, Civil Aviation Minister Jyotiraditya Scindia said the decision to remove the airfare cap has been taken after careful analysis of daily demand and prices of Aviation Turbine Fuel (ATF).

"Stabilisation has set in and we are certain that the sector is poised for growth in domestic traffic in the near future," he had said on Twitter.

Queries on the removal of airfare caps sent to Air India, Go First and SpiceJet remained unanswered