Cap on airline capacity extended till 31 Mar, but airlines can charge more

Govt allows airlines to charge more by increasing the upper- and lower-cap on airfares by up to 30%

Government on Thursday has extended the cap on capacity and control on air fare till 31 March. However, in order to help airlines improve their balance sheet, the government has increased the upper and lower cap on airfare by up to 30 percent.

Currently, airlines are allowed to deploy 80 percent of their pre-Covid capacity but except market leader IndiGo, no other airline has been able to deploy around 70 percent capacity of what they operated during the winters of 2020. After a closure of almost two months due to the coronavirus-induced lockdown, domestic flights resumed on 25 May, 2020
 

Airlines except market leader IndiGo has, however, said that any decision to further increase capacity should be postponed to March as forward booking for next three months is poor.

IndiGo, currently with 265 aircraft in its  fleet, is eager to expand and has repeatedly lobbied the government to remove any regulations on fare and capacity. With a ban on normal international travel, the airline needs to expand domestically or risk idling its planes and increasing fixed cost. During the month of December, the airline has deployed around 78 percent of what they operated before ovid.

However, airlines will be allowed to charge more from passengers as there has been a substantial increase on cap of upper and lower limit of airfare.

For instance, for flights which has duration of 90 to 120 minutes the lower fare cap has been increased to Rs 3,900 from Rs 3,500 whereas the cap on maximum chargeable fare has been increased to Rs 13,000 from Rs 10,000.

While, Civil Aviation Minister Hardeep Singh Puri has recently said that he expected Indian carriers to regain pre-Covid capacity by end of December, he said that he expects full normalcy to return only by end of March.

Analysts tracking the sector said that the biggest worry is the absence of business travelers who buy costly tickets making it possible for airlines to offer cheaper fares to vacationers.

“We believe domestic passenger growth would be slower going forward (than seen over the last seven months) – particularly from business travel and foreigners travelling on domestic routes. This is attributable to long lasting changes in demand demographics from Covid,” Swarnendu Bhusan of Motital OSwal wrote in a recent note to clients.