Staying out of it

India’s fair trade watchdog, the Competition Commission of India (CCI) intervened to look at what has been suggested might be “cartelisation” by airlines on ticket pricing. It even launched a probe into the allegations. It has, however, been unable to find any concrete evidence of manipulation – just as difficult as it has been to prove there is anything wrong with the rise and fall of petrol prices in Australia.

As might be expected in India, central government is following its usual practice of expressing concern, thinking about it, thinking about it again… and again…and again, then taking the easy way out. It has just announced it won’t be tightening the screws on airlines by placing an upper cap on air ticket prices. Instead, it wants airlines themselves to evolve a self-regulatory mechanism, leaving them free to manipulate ticket pricing.

In a meeting with scheduled airline representatives, aviation secretary R N Choubey expressed concern over spiralling airfares “in some cases”, but said he preferred not to impose any government regulation. The aviation ministry has, however, set up an air fare monitoring cell in the Directorate General of Civil Aviation (DGCA) to keep a watch on any sudden spike in air fares on key sectors. After studying recent fare trends on 18 high traffic routes, including the Mumbai-Delhi and Bangalore-Delhi sectors, it concluded airlines were not overcharging. While lawmakers and air passengers aren’t so happy, airlines are obviously relieved and industry analysts are with them.

“The government’s decision to not intervene (in ticket pricing) is the right decision,” said Kapil Kaul, South Asia chief executive of aviation consultancy CAPA – Centre for Asia Pacific Aviation. “Let market forces determine the fares. It was a bad idea to intervene. ” All in all, the government’s decision to keep the big stick in its hip pocket was probably made easier by changing market conditions, particularly the steep fall in global oil prices which has taken some pressure off local airlines. In India the cost of jet fuel can represent as much as 50 per cent of an airline’s operating costs because of the heavy

Let market forces determine the fares. It was a bad idea to intervene.

tax placed on fuel by various state governments. The plunge in fuel costs is apparently being passed on to passengers by most airlines. Statistics show that during the April-July period this year, average domestic air fares were 13-15 per cent lower than the same period a year ago, reflecting the impact of the oil price fall.

It doesn’t mean the fiscal gloom hanging over most Indian operators has been dissipated. In its 2016 India aviation outlook CAPA points out it has merely helped domestic Indian carriers reduce their combined losses in fiscal 2015 by 30 per cent to around US$1. 2 billion, notwithstanding an estimated combined net profit of US$41-67 million reported by lowcost carriers. The combined estimated losses of the three full-service carriers – Air India, Jet Airways and newly‑launched Vistara – stood at US$1. 28‑1. 31 billion during the period, with the government-owned Air India alone accounting for US$900‑920 million, according to CAPA.

It’s hardly surprising then that India’s Minister of State for Civil Aviation Mahesh Sharma has just declared that domestic carriers are in varying degrees of financial stress. He’s told them to take corrective measures to strengthen their balance sheets without compromising the safety of operations. He told Parliament that an assessment of the impact of financial stress on safety of operations of private scheduled airlines was carried out by the DGCA.

“It has been found that all private airlines are in varying degrees of financial stress… the findings of the audit have been individually discussed with the airlines’ management and they have been asked to optimise their operations and reduce the financial burden without compromising the safety of the aircraft operations and take corrective steps,” Sharma said.

In the circumstances, having freedom on the ticket pricing front is a key win for carriers. As for self-regulation by airlines in this area in a commonsense manner … good luck.