Indigo, SpiceJet shares fall after Parliamentary panel proposes route-specific airfare caps

Airline stocks InterGlobe Aviation and SpiceJet were trading lower on Friday, February 9, after news of a Parliamentary panel proposing route-specific capping of airfares and setting up a new entity to excercise control over the ticket rates.

This comes in the backdrop of concerns of surging fares in various quarters.

Shares of InterGlobe Aviation, the parent company of IndiGo airlines, and of Spicejet were trading 3.69% and 4.22% lower around noon.

Stocks of Interglobe Aviation, which operates IndiGo airlines, and SpiceJet decline in trade on February 9.

After considering the responses from the civil aviation ministry on airfares, the committee said that self regulation of ticket prices by airlines has not been effective.

The Department-related Parliamentary Standing Committee on Transport, Tourism and Culture on Thursday tabled the report on the action taken by the government on its recommendations/observations on the issue of fixing of airfares.

In the report, the panel said it has come across various instances where there has been abnormal increase in airfares especially during festivals or holidays, and is of the opinion that self regulation by airlines has not been effective and also recommended that a mechanism may be evolved whereby DGCA is empowered to regulate air tariffs.

Currently, airfares are neither established nor regulated by the government.

The panel also reiterated its recommendation and urged the ministry to explore the feasibility of establishing a separate entity with quasi-judicial powers to exercise control over airfares being charged by the airlines.

Further, the report said the committee is of the opinion that a route-specific fare ceiling can be examined, keeping in mind the interests of both the airlines and the customer.

"It also recommends that in order to protect the commercial interests of the airlines, the feasibility of modifying the ceiling during the peak/festival season, with prior intimation, may be examined," the report added.

According to the committee, revenue management and commercial interests such as maximising shareholders' value determines the fixing of airfares, and passenger interests do not play a role in airfares fixation.

"Hence, it strongly recommends that Ministry may formulate a mechanism to ensure the compliance of Rule 13(1) of the Aircraft Rules, 1937 and thereby ensuring a control on surge in airfares.

"Again the term 'reasonable profit' is used without a clear definition or specific criteria, making it a subjective measure," it noted.

The panel also said it is still of the opinion that the policy on variation in prices of seats for the same flight needs a relook as it is against the principle of equity.

The claim that unbundling reduces the cost of air travel for consumers who desire only the basic product needs to be scrutinised, the committee said, adding that while the practice may reduce costs for some passengers, the same may also lead to increased costs for others who end up paying for various add-ons.