Airborne fares may hit air pocket

With domestic fares set to boom this Xmas-New Year, the tug-of-war between airlines and govt rages on

Now, apprehensions in the civil aviation ministry and fear among travellers is that with Christmas and New Year coming, the airlines may jack up fares again. If you book a ticket in advance, it does not pinch your pocket. But last minute ticket seekers are in danger of being fleeced.

If you want to book for same day travel or within 24 hours (known as spot booking] on some trunk routes such as Delhi-Mumbai or Delhi-Bangalore, or to tourist destinations, you will have to shell out a hefty amount. The hike in peak fare on key routes started immediately after Deepavali – when business activity suddenly zooms in India – and the media glare it got woke up the government. As the Mumbai-Delhi last minute fare shot up by 300 per cent, Aviation secretary Nasim Zaidi cracked the whip on airlines last month (when he was DGCA chief).

 The Directorate General of Civil Aviation had asked all airlines to submit the maximum fares on all routes but instead, the carriers presented a price band on the basis of destination - four distance slabs of less than 750 km, 750-1,000 km, 1,000-1,400 km and beyond 1,400 km. Approval for the airlines’ proposal would have meant the passenger, in case of spot booking, would have paid Rs 10,500 for a Delhi-Chandigarh or Chennai-Coimbatore flight and Rs 40,000 on the Delhi-Bangalore or Delhi-Chennai route.

Civil aviation minister Praful Patel says the kilometre-based fare slabs ”do not merit any consideration. It must be sector, category and periodwise so that there is transparency and a level playing field for both passengers and the industry".

The government has rejected the proposal saying it wants airlines’ to inform a month in advance the maximum fares on every route on a daily basis. It has set up a Civil Aviation Economic Advisory Council to advise the DGCA on all economic and financial issues, including fares. It has even threatened to move the Competition Commission. The DGCA has set up a tariff analysis unit to monitor routewise fares across networks, on a regular basis.

Reality check

What actually led to the hike in fares for spot booking? Industry says it is the market call in a free economy, while analysts say there should be a rationale behind price fixing. Is the industry contention true? Does the government have the powers to rein in prices in a liberalised sector? Are fictitious buying of tickets in bulk being resorted to by travel agents as the ministry suspects (cannot be, says industry, in the dynamic pricing situation)?

It all started with the Mumbai-Delhi fares. As against an average fare of Rs 4,800, post-Deepavali in mid-November, the tariff went up  to a whopping Rs 15,000 (now reduced to an average of Rs 6,000). One reason for this is the closure of one runway at Mumbai airport from 9 am to 5 pm (till July 2011) and, hence, capacity addition has become a constraint. Airlines wanted 573 daily slots from the airport but got only 490 (the Delhi-Mumbai route accounts for 60-70 per cent of the entire country’s traffic of about 45 million). As traffic increased with no increase in seats, some airlines went for the kill. Once Mumbai-Delhi fares went up, fares on other high-traffic sectors too followed suit.

While domestic air traffic is growing at 20 per cent, the seat capacity increased by just 10 per cent. But fares (in November), went up by 10-15 per cent. The other factors which indirectly impacted include increased ATF (aviation turbine fuel) prices (taxes on ATF is about 35 per cent), airport costs including ground handling and navigation fee, and other taxes.

Passengers are outraged over the last minute fares. “As it is, the comfort factor is low in most airlines. Add to this the constant delays in departures and landings, with no food or drink served in-flight, making air travel an unenviable experience”, says a frequent flier. About 50 per cent of travellers in India, points out an airline executive, buy tickets three days ahead of travel while others book well in advance.
However, the airline industry is not prepared to take anything lying down. A senior official of a low cost carrier (LCC) told Deccan Herald on the condition of anonymity that: “Average fares in November, 2010 were lower than last year’s. Our loads are 3-4 per cent high which means fares should have been higher. What is being spread is only anecdotal information. The DGCA wanted us to quote only maximum fare. We were flying at reduced fares all these years but what did we get from the government? Airline cost structure has gone up, be it ATF, airport charges or other taxes, while fares have dropped”. He dismissed suggestions of cartelisation by airlines.

Air India Chairman and Managing Director Arvind Jadhav said AI was a ‘pro-aam aadmi’ airline and would comment only after the DGCA took a decision. For airlines, which have just started making some profit – accumulated losses of all airlines add up to more than Rs 15,000 crore – it is time to make some more money which they are not ready to give the go by.

Experts call for a rational behaviour among all players. Kapil Arora, partner - Aviation sector, Ernst & Young, told this newspaper: “Airline pricing is fairly complex and depends on several variables such as seat demand vs available supply, competition on routes, fuel and operating costs as well as pricing strategies adopted to gain market share. While the accumulated industry losses are significant in India, several carriers expect to improve their margins in 2011-12 driven by  improved yields, robust air traffic growth, stable fuel prices and cost effective management of operations”.

The way ahead

On the steps to be taken by the government, Arora added: “DGCA needs to play an active role in providing regulatory oversight to the airlines and safeguarding the interests of the passengers. Passengers want affordable prices while airlines want to recoup earlier losses. A pricing mechanism that is transparent and enables passengers to make informed choices is what will ultimately succeed.”

A ministry official said the government was against fleecing by airlines. He said that the DGCA has begun a process of examining if airlines should have a fare band sensitive to demand-supply, so that fares do not exceed the highest stipulated level in crunch situations.

But airline sources say that the DGCA is toothless except for powers to issue directions to erring airlines. But the law does not specify the nature of the directions and what action would be taken if airlines fail to comply.

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