New way to control fare prices

Air fares in India are not like flights. They just keep going up, and only up. Over the last few months, the increase has been exponential, due to the troubles in Air India and Kingfisher Airlines.

A return Dubai-Kochi ticket in August may cost Rs 79,000 (Rs 79,000 for an approximately eight-hour travel!), a report in Times of India said.

With the sick airlines unlikely to be removed from the life support anytime in the near future, no let-up can be expected in the ticket charges.

And the curious fact is fares are rising even as the passenger traffic is declining steadily.

The government has, however, been trying its level best to control the fares. The government is planning to separate ticket charge monitoring from the Directorate General of Civil Aviation.

The aim is to make pricing more transparent by asking airlines to share details such as their variable and fixed costs.

Around 40 percent of an airline’s operating cost is fuel charges. An increase in fares when the fuel charge goes up is understandable. But the ticket fares in the country have been rising even after a fall in the fuel charge.

Air turbine fuel, or jet fuel, is not government-controlled and oil companies raise prices in line with the market rates.

The DGCA had recently asked airlines to reduce airfares in the highest fare bucket after it noticed that the increase in the ticket charge was much higher than the increase in fuel prices.

The government had even asked the Competition Commission of India to probe the possibility of cartelization in the segment.

A CNBC-TV18 report, however, had argued that the fare band that’s been approved by the DGCA is so wide, that not only does it make it difficult to track fares, but it also makes it easy for airlines to maneuver them.

The current system is by far a monitoring mechanism by the tariff analysis unit of the DGCA. It does not control the prices. It just “compares the prices with those shown by scheduled airlines on their websites”, the Mint report said.

So a more effective system is the need of the hour. The system should encourage healthy competition so that customers can benefit from it.

However, whatever system is put in place, it is unlikely to offer a long-term viable solution to the problems of the sector.

The government has to take steps to increase capacity in the sector, for which the government has to bring about policy-related amendments.