Parliamentary Panel Proposes Cap On Airfares, Cancellation Charges

A parliamentary panel has suggested capping prices of air tickets on all routes saying carriers make windfall profits and have not passed on the benefit of lower fuel prices to passengers.

Apart from a constant upper limit on airfares, the panel has proposed that airlines not be allowed to charge more than 50 percent of the base fare on cancellation, and that fare must be refunded to passengers, according to its report submitted before the parliament.

Even after a 50 percent reduction of the aviation turbine fuel prices, the airlines have not passed on the benefit to consumers, the Parliamentary Standing Committee said.

“This is a shot in the arm for the common travellers,” Kanu Gohain, former director general of the DGCA told BloombergQuint in an interview.

Around festivals and for bookings made closer to the date of travel, some airlines are charging more than 10 times of the advance booking fare, the panel said. Calling it arbitrary, it said a deregulatory environment doesn't mean “unlimited freedom of exploitation”.

Gohain hopes he aviation ministry will take this report on board and work out an implementation program. The panel has “exposed facts”, he said.

Kapil Kaul, chief executive of aviation consulting firm CAPA India disagreed. Taking away pricing power from airlines would deprive them of the “most strategic weapon” in their arsenal, according to him.

Kaul argued that the airfare regime in India is the lowest in the world and airlines have incurred losses worth $10-12 billion in the last 15 years to keep it that way. “Most of the losses that the industry incurred have directly benefitted consumers,” he pointed out. Most consumers enjoy very low fares and the only ones paying high fares are the ones booking at the last moment. And that's just one percent of total travellers, Kaul said.

He added that the recovery in the aviation industry is cyclical and only due to lower air fuel prices. Besides, airfares in India are low compared to global standards.

Gohain, however, argued that comparing India's airfare regime with other countries is like comparing apples and oranges because the environment is different here. According to him, airlines "in their own wisdom" should have passed on the benefit of lower fuel prices to the consumers.

Watch the full conversation with Kapil Kaul and Kanu Gohain here.