One interesting aspect of India’s recovering domestic market has been the presence of fare bands. The bands set a price floor and ceiling on all routes depending on distance in an attempt to prevent high prices or a price war. But what will happen once India drops the domestic fare bands?
Going soon
In a statement to Parliament, seen in the Hindustan Times, Civil Aviation Minister Hardeep Singh Puri made the future of fare caps clear. He clarified that the government will remove the caps once traffic recovers and has no plans to continue regulating ticket prices. So what will the post-fare caps future look like?
The most likely change will be airlines resuming their huge discounts on tickets. This will result in all airlines dropping their fares in a bid to attract passengers and edge each other out. Depending on demand, discounted tickets are a great way to increase load factors and kickstart domestic travel again.
The second change will be rising prices on certain routes. This means last-minute tickets on packed flights and routes with low competition will see prices slowly bounce back to pre-pandemic levels. However, considering lower demand right now, it’s likely that the price rise will take longer (barring on monopoly routes).
New fare classes
While ultra-cheap hand-baggage only fares have become popular across the globe, Indian airlines have faced restrictions. Until now, carriers could only charge ₹200 ($3) less for a handbag-only fare compared to a checked-in baggage fare. This meant passengers were willing to pay for the slightly higher fare class due to the marginal price difference.
However, the DGCA has announced that it will be doing away with this cap, according to The Times Of India. This means airlines will be able to sell much cheaper cabin bags-only tickets and lower ticket prices. The widening gap will also means that passengers will be more willing to select the cheaper option in the future.
While DGCA has told airlines to clearly highlight the prices of checked-in bags and keep prices “reasonable,” we can expect a new fare class to be established. However, the new rule will only go into effect once the government lifts the previous fare caps.
Threatened recovery
We’ve discussed India’s aviation recovery several times, and how the industry has made a swift recovery despite rising and falling cases. However, as concerns of a second wave mount, there is concern that airlines will see passenger numbers drop substantially once again, hurting the hard-fought recovery.
The threat of a second wave could prevent the government from increasing airline capacity from 80% to 100% and allowing a full recovery to take shape. For now, it’s likely that both capacity and fare caps remain in place for the next few months.
What do you think about India’s aviation recovery? Do fare caps help airlines? Let us know in the comments.