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Circling over airlines, again PDF Print E-mail
Thursday, 17 September 2015 04:57
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Govt would do well to read DGCA report on this

 

After worrying about telecom call drops, the government now wants airlines to keep a check on airfares during major festivals. Less than a month after Indians working in the UAE complained to the visiting PM on high airfares to Kerala during Onam, the civil aviation ministry summoned CEOs of major airlines to discuss the issue. Airlines do charge more during the festive season – a 6 a.m. Indigo flight from Bangalore to Delhi for the Diwali weekend (Nov 8) costs Rs 8,680 if booked today as compared to Rs 5,451 for the same flight a week later (Nov 15). But asking airlines to reduce this ignores the fact that every business charges according to relative demand and supply. An airline can fiddle with its pricing system to charge lower fares during festival time, or during peak hours of the day, but the fare charged to other customers will have to be raised to keep revenues constant – so which passenger does the government think it is okay to penalize?

A DGCA report, out just 3 months ago, is instructive. At that time too, the political class argued airlines were price gouging – selling too few tickets at discounts and too many at a high price. In the Delhi-Mumbai sector, the DGCA found, Indigo was charging an average of Rs 7,884 in Q1, a traditionally busy season – the lowest fares were Rs 3,053, the highest was Rs 18,979. But if the Q1 fares were too high, surely the government realizes this is needed to compensate for Q3 when average fares fell to Rs 5,853? The DGCA also found, in Q4 of 2014, high fares accounted for just 2.6% of Jet Airways revenues on the Delhi-Mumbai route, 1.4% for Indigo and 0.5% for Air India; low fares accounted for 9% (Jet Airways), 22.2% (Indigo) and 0.3% (Air India). Bucket fares accounted for the balance 88.4% (Jet Airways), 76.4% for Indigo and 99.2% for Air India. If it is the government’s belief the airlines are cartelizing – and in this case, there are international airlines also flying from UAE to Kochi – it should simply refer the matter to the competition authorities. Or, it can just tell Air India to cut rates during festival season, and every airline will be forced to follow suit. But, as the DGCA report shows, Air India also follows the same cyclical pricing – not surprising, since that’s what market economics is all about. While the ministry remains focused on non-issues, the real ones like the aviation policy, including the rules that govern airlines flying abroad, have not yet been resolved.

 

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