Don't micro-manage

Air passenger compensation should be left to market forces

On the face of it, the civil aviation ministry’s draft charter on passenger rights, proposing relaxation in flight cancellation charges while fixing hefty compensation for missed connecting flights as well as for lost/damaged baggage, may seem to be a consumer-friendly step. But it is likely to prove counter-productive for Indian passengers. The draft charter, which is now up for consultation, mentions that a passenger can now cancel tickets free of cost within 24 hours of booking if one is travelling more than four days later. Also, it suggests that the cancellation fee can at no point exceed the base fare.

Other provisions include compensation for missed connecting flights due to an airline’s fault, ranging from Rs 5,000 for a delay of three hours to Rs 20,000 for more than 12 hours. Also, the government has proposed a compensation for lost baggage at the rate of Rs 3,000 per kg. For damaged baggage, the payment will be Rs 2,000 per kg. The current liability that an airline bears for lost baggage is up to Rs 20,000 per passenger, with companies making their own interpretations. Globally, the rules are guided by the Montreal Convention 2003, fixing the compensation fee limit at around Rs 20,000 per passenger.

The government’s intervention looks unnecessary as airline charges should be best left to the market to handle. The government should realise that the proposed rules may push up the cost of air travel on the whole. Since cancellation charges form part of the ancillary revenue, the income of airlines is bound to be hit by any reduction in those charges. Indigo, for example, gets as much as 5 per cent of its revenue from ancillary charges. In such a scenario, airlines are likely to pass on the additional burden to passengers in the form of higher air fare. Not only that, there’s a risk of airlines, currently under profitability pressure due to high fuel cost and intense competition, cutting corners on safety features if these rules were to be implemented.

The latest data from the Directorate General of Civil Aviation (DGCA) shows domestic air passenger traffic rose to 11.5 million in March 2018, up 28 per cent from the 9 million in the corresponding period last year. In about three and a half years, air travellers have doubled in India — a growth rate that has not been seen anywhere else in the world. The data indicates that India’s aviation market, the third-largest in the world, has come of age and therefore it should be left alone.

Minister of State for Civil Aviation Jayant Sinha told a parliamentary panel last year that only less than 1 per cent of all the airline prices went above the average. The minister had argued that the Competition Commission of India and the DGCA could be approached if anything goes wrong. But the draft charter goes against that spirit and is more in line with populist measures that a government falls for ahead of elections. The government should keep an arm’s length distance from framing rules that could upset the market dynamics in important sectors, and instead focus on long-term objectives such as developing infrastructure and regional connectivity to give a boost to passenger traffic and expand the market, which is still hugely under-penetrated.