Jayant Sinha wants lower cancellation charge: Good for passengers but does the govt want to regulate air fares now?

New Delhi: A nudge and a wink is all it takes for businesses in India to get the message, with the government rarely resorting to harsher measures to get its point across. A recent instance, which was a departure from the usual practice, was the government invoking threat of the anti-profiteering authority cracking down on FMCG companies when the hapless manufacturers said they would reduce prices from December, not immediately, after GST rate corrections.

Strongly worded, individual communications sent from North Block to each manufacturer ensured that the companies hastened to cut prices mid-November, never mind that the actual deadline was further ahead and even when it was next to impossible to get the new price labels in place. It seems a similar sort of mindset is plaguing the government yet again, since it has now warned airlines against “high” cancellation charges.

No, mercifully there has been no official communication yet from Rajiv Gandhi Bhawan which houses the ministry of civil aviation, regarding a reduction of these charges. Of course, let us at the outset declare that this move, if it does get implemented, would be quite consumer friendly as frequent flyers would rejoice at having to pay significantly less for booking airline tickets but then having to cancel these due to unavoidable circumstances.

 Jayant Sinha wants lower cancellation charge: Good for passengers but does the govt want to regulate air fares now?

Representational image. Reuters

It hurts especially if the passenger is re-booking with the same airline and perhaps merely looking for a different time or for a flight with the same airline the next day. Those who need to fly for a family emergency are anyway not impacted because such tickets are usually bought at the last minute. It is frequent flyers and deal fiends – those who perennially look for lucrative deals to book tickets – who will benefit the most.

Minister of state for civil aviation Jayant Sinha, told The Times of India, "We believe cancellation charges are on the high side and onerous for passengers. The Rs 3,000 fee is in many cases more than the price of the ticket itself. Our UDAN (subsidised regional flying) scheme has capped fares at Rs 2,500 per hour of flying. These cancellation charges need to be brought back into balance."

So while passengers may (rightfully so) rejoice at any move to trim cancellation charges, what Sinha’s diktat doesn’t explain is the continued stand of the government on airline pricing in general. It has repeatedly said that airlines are free to price tickets any way they like, as long as the steepest fare does not cross that displayed on its website. Continued pleas in this regard from passenger associations and even Members of Parliament (MPs) have fallen on deaf ears. When exorbitant last-minute ticket prices are not the business of the government, why should cancellation charges and any increase be its headache, unless all this is being done for populist gains?

The government often quotes Rule 135 of Aircraft Rules 1937 to say that airlines are free to determine fares and the government cannot interfere in ticket pricing. Sub-rule (1) of rule 135 states that every air transport undertaking engaged in scheduled air services shall establish tariff having regard to all relevant factors, including the cost of operation, characteristics of service, reasonable profit and the generally prevailing tariff.

So the government should now perhaps make up its mind: will it regulate fares or not? If it does want to regulate fares, first up should be exorbitant last minute fares which make it next to impossible for those experiencing genuine emergencies to fly. Apart from this, what about "convenience fee” which flyers have to pay for making online bookings? And the extra luggage fees which many passengers complain against? The entire gamut of pricing decisions on air fares then needs a relook.

In this circular last year, aviation regulator DGCA had allowed unbundling of service by airlines which meant they could charge extra for services like seat selection, meal bookings, preferential boarding etc but should not make it compulsory on the passenger. Even here, the DGCA had only insisted on allowing the passenger an opt-out option, not what can be charged for such services.

Besides, airline industry veterans say there is large-scale cancellation of tickets booked in advance – well over 50% of all bookings – as people usually book earlier to get low fares but are unable to fly on the given date. The fares a month out or even three weeks in advance are obviously lucrative and far cheaper than fares closer to the flight date. Besides, the Indian market has seen a flurry of fire sales and limited period offers in the last few years, specially from LCCs, which stimulate the market for a limited number of seats regularly.

This entire booking algorithm works on the premise that pre-booking gets the passenger good deals, later bookings are expensive and cancellation is heavy on the pocket.

Besides, perhaps the government also needs to ponder over the economics of airlines. An airline executive said it would be counter-productive if cancellation charges were to be brought down to zero, since multiple cost heads are involved when a passenger makes the booking – payment gateways, call centres etc. If the cancellation fee were to be waived off completely, it would mean additional cost burden for airlines.

Why not slash it significantly? Well, in a market where high taxes of aviation turbine fuel (ATF) make it extremely tough for airlines to make money, ancillary revenues are the only bright spot. Ancillary services include a wide range of things such as preferred seats and pre-booking meals besides cancellation charges. By some accounts, low-cost carriers charge much lower fees for cancelling tickets than the Full Service airlines.

The bottomline is that there should be clear thinking on air fares. Let the government decide once-and-for-all if it wants to regulate fares or not. If yes, then it should go the whole hog. If not, then it should stop this occasional meddling.

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Updated Date: Nov 28, 2017 16:20:04 IST