Where's discipline? Aviation minister orders probe into fare discounts, predatory pricing

The minister now wants a probe into the entire business of frequent fare discounts. A senior ministry official told Firstbiz that the present system of discounting fares by airlines reeked of 'predatory pricing' and needs to be checked. He said the minister will not be asking aviation regulator DGCA to conduct a probe but task officials of the ministry to do this.

Sindhu Bhattacharya October 30, 2014 08:53:59 IST
Where's discipline? Aviation minister orders probe into fare discounts, predatory pricing

New Delhi: Are consistent low fares and discounts attracting more flyers in India?

The jury is still out on that but one unintended consequence of airlines' frequent fire sales has been severe displeasure of the Civil Aviation Minister A Gajapathi Raju. The minister now wants a probe into the entire business of frequent fare discounts. A senior ministry official told Firstbiz that the present system of discounting fares by airlines reeked of "predatory pricing" and needs to be checked. He said the minister will not be asking aviation regulator DGCA to conduct a probe but task officials of the ministry to do this.

"We do not want to hurt the business of airlines. But at the same time there should be transparency in fares. How many seats are available for a particular discounted fare should be known to passengers before booking. Also, how can airlines sell below cost? If this is not predatory pricing, what is," this official wondered. He asked not to be identified.

How will fares be probed? Will airlines have to now publish fares within limits set up by the ministry? This practice - of preparingpre buckets or a range within which they could move for each domestic sector - has been tried earlier under the UPA2 regime but did not really work.

On their part, airlines have often rebutted charges of predatory pricing by saying that they know why they are offering consistent low fares (to stimulate demand). In short, they have virtually told the ministry to mind its own business and let them mind theirs

There is only one small problem: except market leader IndiGo and small player GoAir, every other Indian airline is in the red.

A stort in Mint newspaper this morning quotes aviation consultancy CAPA to estimate September quarter loss for Indian airlines at a whopping Rs 2200 crore. The ministry official quoted earlier said airlines' distressing financial situation is one of the many reasons the minister wants to instil some pricing discipline into them. "We do not want airlines to stop flying due to unmanageable losses. All this is being done to help improve their financial situation".

SpiceJet has been leading the airlines' discount spree by announcing almost daily schemes. Other airlines have followed suit. Earlier this week, Air Passengers Associaton of India (APAI) alleged there was a scam in these schemes. The APAI said it had monitored the schemes offered by Indigo, SpiceJet and Jet Airways-Jet Konnect. The association said the airlines offered one-way tickets priced between Rs 899 and Rs 1,799 on a few sectors provided they were booked between October 22 (Wednesday) and October 26 (Sunday). The association said it got 'sold out' each time its members tried to book tickets at discounted prices.

But SpiceJet COO Sanjiv Kapoor rubbised APAI claims. He tweeted: "Dear APAI: low fares drove 28% growth in pax last mth. Our mailbox flooded with pax asking "who and what is APAI"???Cheers (@SKapoorSpiceJet).

Makemytrip's Keyur Joshi also tweeted in support, calling APAI's allegations "motivated". APAI has already asked the DGCA to launch a probe into these discounts.

But is asking airlines to stop discounts the only way to prevent some of them from folding up? Crude oil prices have dipped by over 17% since June, says Kapoor in another tweet. But the prices at which jet fuel is available in India have dropped by only 3%. If the Government is so concerned about airlines folding up, should it not also bring down ATF prices at least when global prices are falling?

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