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An Air India 777-300ER (Photo: AirlineGeeks | Katie Bailey)

Indian Government Sets Price Limits on Airfares

India implemented one of the toughest lockdowns in the world as the coronavirus started spreading across the country. Outside of severely restricting people’s day to day travel within cities the government took it one step further by stopping international arrivals on non-citizens and completely suspending domestic air travel two months ago.

Completely shutting down one of the fastest-growing aviation markets in the word wasn’t an easy choice. It left the airlines blindsided and struggling for cash with no end in sight.

Airlines around the world have all experienced some sort of disruption in normal activity. However, the complete suspension of air travel with the exception of a handful of cargo flights left Indian airlines in a precarious position. It’s usually a given that most Indian airlines are operating a stone’s throw away from bankruptcy at any given time.

The air travel suspension has been in effect for nearly two months but it’s finally coming to an end. The Indian government announced that domestic flights will finally resume on May 25. However, there is a lot more to it. Flights can resume but the government has implemented strict price controls on flights.

This is likely in an attempt to control airfare pricing during the initial phase of the resumption of flights. Pricing is based on flight duration and will be in effect for the next three months.

Pricing Bands

The government has designated seven classes of sectors and set the minimum and maximum fares airlines are allowed to charge for flights designated in specific sectors. The government has said that “realistic” prices were set based on corresponding rail fares. This seems like logical gymnastics since operating costs and structures are entirely different.

Flights under 40 minutes: Min- Rs 2,000 ($26) & Max- Rs 6,000 ($79)

Flights between 40 and 60 minutes: Min- Rs 2,500 ($33) & Max- Rs 7,500 ($99)

Flights between 60 and 90 minutes: Min- Rs 3,000 ($39) & Max- Rs 9,000 ($118)

Flights between 90 and 120 minutes: Min- Rs 3,500 ($46) & Max- Rs 10,000 ($131)

Flights between 120 and 150 minutes: Min- Rs 4,500 ($59) & Max- Rs 13,000 ($171)

Flights between 150 and 180 minutes: Min- Rs 5,500 ($72) & Max- Rs 15,700 ($206)

Flights between 180 and 210 minutes: Min- Rs 6,500 ($86) & Max- Rs 18,600 ($245)

Another condition to these pricing bands is that 40 percent of tickets that fall within each band must be priced at less than the halfway point of the minimum and maximum of each band to prevent all tickets being priced at the maximum. This also is coupled with capacity forced capacity restrictions which can choke supply if demand increases more than expected, for the most part Indian airlines are allowed to operate at a third of the capacity.

Keeping Airfare Affordable

This regulation aims to manage airfares and prevent spikes in prices that would price out all but the highest paying passengers. In a time when Indian airlines are dying for cash limiting the amount they can charge seems counter-intuitive but this is an action to serve the best public interests of the people. While some money is better than nothing hopefully this doesn’t start a precedent around the world.

Airlines have price gouged in the past during calamities, it happens every so often during hurricane season in the US, but public outrage generally forces airlines into submission by capping fares. Regulation generally isn’t the best idea as a tool to force airlines to work in the public interest.

It’s an interesting approach and reminds one of the time when US airlines were regulated by the government, except at that time US airlines performed well because fares were consistently high.

Hemal Gosai
Hemal Gosai
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