Airlines don't overcharge PDF Print E-mail
Tuesday, 10 May 2016 03:58
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MPs agitating over this must read the DGCA report


Given how Delhi chief minister Arvind Kejriwal’s decision to curb surge pricing by Ola/Uber got such popular support, it is not surprising that our MPs should want to intercede in what they consider surge pricing by airlines, during the floods in Chennai and the Jat agitation in Haryana for instance. In response to this, aviation minister Ashok Gajapathi Raju told the Lok Sabha that the government was considering a cap of Rs 2,500 per ticket on one-hour flights. Instead of wasting his time on such non-issues—he still hasn’t removed the anti-competitive 5/20 rule—which only reinforces the view that the government is anti-market, he would do well to read the DGCA report released around this time last year when MPs were also raising the issue of price-gouging on last-minute bookings.

In the four quarters of 2014, across 18 routes including high-density ones like Delhi-Mumbai and low-density ones like Kolkata-Port Blair, the DGCA found, the average fare was closer to the minimum charged, even though the maximum was considerably higher. 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 realises 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. Apart from the fact that this shows little evidence of price-gouging, surely the government is not arguing Air India is part of this cartel—in Q1 2014, for the same Delhi-Mumbai route, Air India charged a maximum of Rs 26,535 when Indigo charged Rs 18,979 and a minimum of Rs 3,055 (Indigo Rs 3,053) with the average fare being Rs 8,650 (Indigo Rs 7,884). In any case, with the heavily taxed aviation fuel accounting for 45-50% of operating costs of Indian airlines as compared to around 32% for global airlines, the government can lower fares if it puts ATF on the list of declared goods which prevent states from hiking VAT rates. The surge in India’s flying public, as compared to the stagnation in those travelling in air-conditioned coaches in the Railways, is also testimony to the fact there is no price-gouging.


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