Price caps on airline fares: Is the aviation ministry divided on pricing regulation?

If the airlines want more people to travel, they need to have a realistic pricing system,which means price caps on domestic airfares. That appears to be the government’s logic for fixing the maximum and minimum limits on airfares in the economy class. While civil aviation minister Ashok Gajapati Raju is said to be in favour of leaving commercial decisions to airlines, his junior, Mahesh Sharma, has been advocating a proactive government role. According to Sharma, the price capping could be done through three ways: 1.Consultation with airlines to arrive at a fair range within which the maximum and minimum airfares will fall 2. DGCA should study the different airfares on various routes in different season and then impose price caps it deems appropriate 3. Deriving the tariff based on the fares of national carrier Air India.This means on select routes on which ticket prices are high, Air India maybe asked to slash fares significantly,hoping that private carriers will follow suit. “This is a matter of discussion to put price predating and price capping on the airfares,” he said in Parliament yesterday, adding: “During the earthquake in Nepal, we had decided the fares for Air India to be Rs.4,000 and all the other airlines had also kept their fares around it.” [caption id=“attachment_2280620” align=“alignleft” width=“380”]  Representational image. Reuters[/caption]He also said in a lighter vein that if his ministry seeks advise from lawmakers, a majority of them would favour capping of fares. The MPs, cutting across party lines, have been seeking the intervention of the government to check steep hikes in airfare fares. But in Rajya Sabha on Tuesday, Sharma, had said a written reply: “As per prevailing regulations, it is the prerogative of individual airlines to establish their process of determination of airfares. As such, government does not interfere in the commercial aspects of airlines.” He had also said: “Airfares are not regulated by the government as they are determined by interplay of market forces.” The senior minister at Rajiv Gandhi Bhavan, Ashok Gajapathi Raju, has on several occasions in the past maintained that putting caps and floors on airfares will have their own implications and that pricing should best be left to the carriers to decide. However, on Wednesday, Sharma said there were no “differences” between him and Raju, and the government would do what is “in the best interests of the people”. Earlier, the ministry was debating a mechanism where it proposed maximum fare to any destination for economy class at Rs 20,000. The minimum fare was to depend on the breakeven cost of each airline. A few months ago the DGCA began asking all domestic airlines to submit data on fares. Airlines are now asked about number of seats sold on highest and lowest fare buckets for each sector. There was always a requirement for airlines to reveal lowest and highest fares on each sector but not how many seats sold at each fare. The regulator has been monitoring this data for sometime before deciding to take any action. In fact, a Tariff Monitoring Unit has been set up within the DGCA for this purpose where it select airfares on certain routes on a random basis. It thus remains to be seen if the DGCA will actually regulate fares or allow airlines to self-regulate. Airlines are already being nudged to desist from "predatory" pricing. Though there is no stated definition of what constitutes exorbitant fares, indications have been given to airlines’ top brass that maximum fare on a sector should not exceed 2.5-3 times the average fare. As of now, last minute fares can sometimes be over 10 times the lowest average.