Aviation Ministry should stop worrying about airfares

Aviation ministry should concentrate on improving the fundamentals of the sector and stop worrying about fares

Like its counterpart in telecommunications, the civil aviation ministry has a delicate role to play in fostering healthy competition in a licensed industry. But even within that almost contradictory paradigm, it is difficult to understand the rationale for the ministry's plans to regulate airfares and refer possible irregularities to the Competition Commission of India (CCI).

The argument may appear unexceptionable, since airlines do occasionally indulge in collusive abuse of their dominance. But two issues flow from this. First, are these practices, even if they are proven, so rampant as to amount to wholesale cheating? Second, does the ministry really have the wherewithal to track down and examine such practices?

To consider the first point, one compelling indicator of collusion and overcharging would be super-profits earned by airlines. This is nowhere in evidence. According to a CAPA outlook on Indian aviation, the seven Indian domestic airlines (Jet Airways and JetKonnect are considered separately) lost about $1.65 billion (about Rs 9,900 crore at the current exchange rate) in 2012-13. Critically, about 40 per cent of this loss was generated in the last quarter of the year, according to the study, owing to "aggressive discounting during the traditionally weak period between January and March".

Going forward, the steadily weakening rupee will put even more pressure on costs, especially on account of fuel. Though Kingfisher Airlines' exit will have eased competitive pressures, the impending entry of a seriously intimidating competitor as AirAsia is unlikely to encourage airlines to overcharge consumers.

Also, given that airlines already have to provide a break-up of the components of the fares, is it necessary to monitor them? Is an Indian airline passenger, who is likely to have above-average education, incapable of judging whether she is being cheated or not? In any case, the CCI, too, has the powers to take suo motu cognisance of anti-competitive behaviour and it has done so in the past in some sectors. So why does the civil aviation ministry have to get into this arena?

This raises the second point about capabilities, which the ministry clearly lacks. Indeed, the plan to set up such a monitoring cell is a symptom of a basic ignorance of how the industry functions. For the past few years, fare pricing has become so dynamic that it is difficult to say what amounts to a "correct" fare on a given route; it can vary widely depending on when the ticket is booked, seat availability on the day and so on. If anything, the need for an independent regulator to replace the government's Directorate General of Civil Aviation was never more urgent.

This is especially so since the special economic cell to scrutinise airfares is to operate under the aegis of the ministry that also owns and manages Air India, the fourth largest domestic player. This position is both absurd and unethical. Why the government is constantly worried about such issues in an industry that involves a minuscule percentage of India's population is certainly a mystery - especially when the Railways, which transports the most Indians every day, is in an advanced stage of decrepitude.