The central government has decided to remove the airfare fare caps on domestic flights from August 31, 2022, after analysing the daily demand and prices of air turbine fuel (ATF). This essentially means that airlines will now be free to charge fares, based on market dynamics of demand and supply.
Civil aviation minister Jyotiraditya M. Scindia says the decision to remove airfare caps has been taken after careful analysis of daily demand and prices of air turbine fuel. "Stabilisation has set in & we are certain that the sector is poised for growth in domestic traffic in the near future," says the minister. The move could allow relatively cheaper flight tickets on lean periods, while high fares during the busy time of the year.
Issuing the notification, the ministry said the fare bands, which were notified from time to time regarding the airfares, have been removed after reviewing the current status of scheduled domestic operations viz-a-viz passenger demand for air travel.
The ministry, however, says that airlines and airport operators will, however, ensure that the guidelines to contain the spread of COVID-19 are strictly adhered to and COVID appropriate behaviour is strictly enforced by them during travel.
Due to the outbreak of COVID-19 in India, scheduled domestic operations were suspended on March 25, 2020, which were subsequently resumed in a calibrated manner from May 25, 2020, with fare capping – lower and upper limits on the different sectors – to stop airlines from charging excessive fares.
As per the government, the fare band served the dual purpose of protecting the interests of the travellers as well as the airlines. The fare bands were revised from time to time in view of the substantial hike in the price of aviation turbine fuel (ATF). The airfare caps were again revised in September 2021 by increasing both the upper and lower limits.
During the last two years, the COVID-19 pandemic adversely impacted the revenue streams of businesses including the aviation sector. Under normal circumstances, airfares are neither established nor regulated by the government. Due to the unprecedented circumstances, fare bands with upper and lower limits were introduced by the government as a special measure.
Presently, fare capping is applicable on a rolling basis for a 15 days cycle, and now the government has decided to do away with airfare caps from August 31, 2022.
The ATF prices have been rising for many months now, putting a huge burden on airlines in terms of operational costs. Amid the Russia-Ukraine war, the ATF prices have gone to ₹1,21,915.57 per kilo litre from this month (Indian Oil data) from ₹53,000 per kilo litre in 2019-20. The ATF prices in Kolkata stand highest at ₹1,28,425.21 per/Kl.
The sky-high prices of ATF have led to a massive rise in operational costs for airlines. Jet fuel makes up about 40% of an airline’s total operating costs. Tepid demand, coupled with high operational costs, has led to massive losses for airlines. For example, India's largest airline InterGlobe Aviation Ltd. (IndiGo) has reported a net loss of ₹1,064 crore for the April-June quarter. Tata-owned Air India's FY22 net loss stands at ₹9,556.5 crore.