Govt fixing air fares will kill airlines

• Posted in Aviation
• on May 5, 2016
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There are many lessons the government can draw from the stupendous growth of the telecom sector and one of the top most would be to not meddle in tariff fixation in any sector unless there is something that can distort market competition.
But, the current NDA government appears to be ignoring this in the case of the civil aviation sector, which in effect will harm the consumers though the politically-expedient idea is to help them.
Civil Aviation Minister Ashok Gajapathi Raju said in the Lok Sabha yesterday that the government is considering a proposal to ensure that only Rs 2,500 is charged per ticket for one-hour flights, and his ministry will soon start the consultation process with the stakeholders to explore the possibilities of containing fares.
It is true that steep airfares during emergency situations like unprecedented floods in Chennai and Srinagar and the recent Jat agitation raise concerns, but that can’t be seen as a case for imposing restrictions on air fares across the board, which can derail the airlines’ business completely.
The price of any commodity or service is best left to the market dynamics and if the government wants to support any segment, it should upfront do it through subsidies allocated in its budget, instead of forcing it on the business entities — the Indian Railways is a burning example of how regulated tariff is forcing it to lose both passenger and freight traffic.
So, the better idea would be to let the airlines fix the air fares that they think is necessary to run their business and then leave it on the market competition to decide whether those prices could be sustained or not.
The government needs to remember the findings of the Directorate General of Civil Aviation (DGCA) analysis of airfares on 18 routes, including high density routes (Delhi-Mumbai and Bangalore-Mumbai) and low-density ones (Kolkata-Port Blair) during the four quarters of 2014.
The study revealed while there was a big difference between the minimum and maximum fares, the average was closer to the minimum fare.
This means that the bulk of tickets is being sold closer to the minimum fares.
If the government is really serious about reducing air fares, it should focus on reducing the cost of operation of the airline companies, especially ATF prices and taxes, instead of imposing restrictions on air fares in a high-handed manner. Matt Breida Authentic Jersey

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