Parliamentary panel advocates DGCA intervention to tackle surging airfares

Led by YSR Congress MP V. Vijaysai Reddy, the committee recommends empowering the Directorate General of Civil Aviation (DGCA) to regulate air tariffs.

As per the Ministry of Civil Aviation, DGCA has a Tariff Monitoring Unit that monitors airfares on certain routes on a monthly basis to ensure that the airlines do not charge airfares outside a range declared by them.

DGCA monitors airfares on certain routes on a monthly basis to ensure reasonable airfares. However, according to the report by the parliamentary committee, DGCA has not inspected the records of airlines over the last 10 years, and without any inspection, it has stated that airlines have complied with the rules.

“The Committee opines that a case of violation by airlines can only be detected if the records are inspected by DGCA. The Committee has come across various instances where there has been an abnormal increase in airfares, especially during festivals or holidays, and is of the opinion that self-regulation by airlines has not been effective. The Committee, therefore, again recommends that a mechanism may be evolved whereby DGCA is empowered to regulate air tariffs. The committee urges 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,” the report said.

The main possible reason behind a possible hike in airfares, as cited by the MoCA at various instances, is that the airlines are free to charge reasonable airfares, and there is no provision under which the Government is required to monitor the seat booking fees of airlines.

The airlines sell tickets as per their respective distribution systems, which is in line with global practice. On possible intervention on the side of the DGCA, the ministry stated that the DGCA does not have any power to regulate tariffs based on the data generated by the Tariff Monitoring Unit, as the process of airfare regulation has been dispensed with.

“Internationally, civil aviation has a highly seasonal market. The Indian Market is also characterised by high (May to mid-July and October to mid-January) and low (mid-July to September and mid-January to April) seasons. Traffic is usually high in the months of May and June; through mid-July, international traffic flows are high, thus contributing to the domestic feed as well. July through September is traditionally a leaner period as travel is restricted due to monsoon and other religious reasons,” the ministry said in its reply to the committee.

“In October, with the festive season starting Dussehra, traffic picks up again, and by the middle of January, the demand diminishes. Till about the last week of April, this trend of softening of demand continues, and again, due to summer holidays, the demand increases. Passengers are extremely price-sensitive. Price is the primary driver to pick an airline, especially for leisure travel. All airlines compete on price with other carriers in the respective markets.”

“Airlines adopt dynamic pricing by changing prices often depending on the day of the week, time of day, and the number of days before the flight factoring in different components such as how many seats a flight has, departure time, and average cancellations on similar flights. Dynamic pricing plays a crucial role in determining how airlines recover their costs and improve their revenue per flight,” it added,

According to the parliamentary report, the ministry in its reply has said that if very few seats are available on a flight, the fares may be higher. Therefore, it is possible at times that the flight of a low-cost carrier (LCC) is in higher demand than a full-service carrier (FSC) and hence may see a higher fare being offered at a particular booking period.

Contesting this claim, the panel report said, “The Committee is not satisfied with the justification of the Ministry regarding higher fares being charged by Low-Cost Carriers (LCCs) vis-à-vis Full-Service Carriers (FSCs). It is aware that there have been instances where the LCCs have charged higher fares as compared to their Full-Service counterparts for flights on the same route and similar timings. The Committee reiterates its recommendation and urges the Ministry to monitor such instances and take corrective actions if necessary. The Committee, therefore, calls for more transparency and details on the monitoring process.”

Speaking on the ATF VAT front, the committee said the ministry should take up the matter once again with those States which are still charging higher rates of VAT and also explore the possibilities of further reduction in the rates by the remaining States.

“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 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 reads ahead.

“The Committee notes the mitigation measures suggested by the Ministry in the event of the sudden exit of an airline. The Committee may be informed of the applicable rules issued by the Ministry regarding the suspension of operations by an airline. The Committee would also like to know whether these rules were adhered to by GoFirst before the airline went bankrupt. Further, the Committee recommends that the Ministry should develop a contingency plan in consultation with all the scheduled airline operators to deal with such situations in the future. The Committee observes that the Ministry's response does not address the accountability or consequences for GoFirst's failure to comply with rules and inform the regulatory authority,” the report says on the bankruptcy of GoFirst airlines.