Govt considering cap on maximum economy air fare

Government is  considering capping economy air fares at Rs 20,000 to check airlines from charging "exorbitant" fares or unleashing predatory pricing, affecting their own financial health.

The proposal comes in the backdrop of SpiceJet episode, which had come out with a series of low-fare offers throughout the year to beat competition and then facing cash crunch.

"Steps may be taken to fix minimum  and maximum air fares.... There is a need to fix a cap on the maximum air fare of economy class at a reasonable price of around Rs 20,000 beyond which the airline should not be allowed to charge, exploiting the passengers' urgency for travel due to various reasons," the Civil Aviation Ministry said in internal note.

The government is of the view that some of the companies are in danger of facing huge losses due to these huge discounts in fares with some of the fares not even covering the operating costs, it said, adding," if the situation is not contained, some of the airlines in the country may face closure in near future."

According to the note, the airlines can be asked to submit their break-even price per kliometer, which will depend on the service offered and the type of aircraft among other factors.

"An appropriate profit can be added to the break-even price per km and that can be minimum price per km to be charged by the concerned airline," the note said.

The steps will ensure that no airline will go into losses, it said adding the carriers should be asked to fix their air fares in such a way that Earnings Before Interest, Depreciation and Tax (EBIDTA) should be positive."

The note also said that the airline companies were charging very high spot fares and that there were large number of complaints received from Jammu and Kashmir and North East region, Andaman and Nicobar and several other places in the country.

"In order to remove the grievance of the passengers on account there is a need to fix a cap on maximum air fare of economy class at a reasonabl;e price of around Rs 20,000," the note said.

However, the Civil Aviation Secretary will hold consultation with stakeholders prior to implementing the proposed measures; official sources said adding "this would bring some pricing discipline in the airline industry."

At the same time, the internal note has also suggested some financial incentives to the airlines such as declaring the industry as infrastructure industry, which will help it borrow at lower interest rates for the growth of the industry.

The government can consider directing the Indian banks to have a minimum interest cap of about 8 per cent in cases of all loans given to the airline companies, the note said.

The airline companies should be allowed to go for external commercial borrowing with low interest rates besides granting tax benefits including complete income tax exemption for a fixed period on the lines of Special Economic Zones, rescheduling of payment of dues of the banks, oil companies and Airports Authority of India with an extended tenure, the note said.