The move will also push debt-ridden and financially weaker airlines towards vulnerability amid the fare battle that will be unleashed by big players.
Airlines are now free to decide on fares of domestic flights from August 31 with the government discontinuing the capping on minimum and maximum limits from August 31. this will once again allow airlines to charge as per market forces of demand and supply.
“The decision to remove air fare caps has been taken after careful analysis of daily demand and prices of air turbine fuel (ATF). Stabilisation has set in and we are certain that the sector is poised for growth in domestic traffic in the near future,” said Aviation Minister Jyotiraditya Scindia on Twitter.
The removal of capping on fare limits, which comes after a span of approximately 27 months, will mean lower fares in lean travel periods to full up planes and even higher fares in the coming busy travel season.
However, the move will also push debt-ridden and financially weaker airlines towards vulnerability amid the fare battle that will be unleashed by big players amid a sharp escalation in operating cost due to high jet fuel prices and a weak rupee.
ATF prices have been coming down during the last few weeks after jumping to record levels, primarily due to the Russia-Ukraine war that began on February 24.
On August 1, the price of ATF in Delhi was Rs 1.21 lakh per kilo-litre, which was around 14 per cent lower than last month.
The ministry had imposed lower and upper limits on domestic airfares based on flight durations when services were resumed on May 25, 2020 after a two-month lockdown due to the Covid-19 pandemic.
For example, airlines currently cannot charge a passenger less than Rs 2,900 (excluding GST) and more than Rs 8,800 (excluding GST) for domestic flights of less than 40 minutes.
The lower caps were there to protect the financially weaker airlines and the upper caps to protect passengers from high fares.
On Wednesday, the Civil Aviation Ministry stated in an order: “After review of the current status of scheduled domestic operations viz-a-viz passenger demand for air travel…it has been decided to remove the fare bands notified from time to time regarding the airfares with effect from August 31, 2022.” The airlines and airport operators must, however, ensure that the guidelines to contain the spread of COVID-19 are strictly adhered to and COVID-appropriate behaviour is strictly enforced by them during travel, it added.
Vistara CEO Vinod Kannan had on June 19 said that he would be happy if the lower and upper limits on airfares were increased but the best solution would be for the airlines to have absolute freedom on airfares.
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