Let competition take care of airline prices

The sharp, over 40%, drop in fuel costs over the past three months has raised the clamour for a cut in air fares. Lower aviation turbine fuel
(ATF) cost has certainly made life easier for the beleaguered airlines, but that does not mean they are out of the woods.
The rationale for fare cut is based on the logic that airlines are charging a fuel surcharge of Rs 3,100 per sector compared to Rs 1,350 last November even as the price of ATF has fallen below that in November 2007.
A part of these savings has been offset by the sharp depreciation of the rupee, as airlines tend to have significant dollar costs, rentals on aircraft leased, maintenance and some personnel costs. The sharp drop in traffic has, on the other hand, negated the increases in fares.
Therefore, it is doubtful that even at these lower fuel costs, airlines would be making any significant profits. Besides, India’s airlines reported cumulative losses of about Rs 4,000 crore in 2007-08, which are expected to increase further to about Rs 9,000 crore in 2008-09. This means the larger task of balance-sheet repair remains.
India’s airlines need to turn in significant profits for fare cuts to become feasible. In any case, it is not for the government to meddle in pricing. The right way to ensure fairness in pricing is to have an empowered competition commission that can help foster competitive market. Such oversight is particularly urgent in the case of the airlines where a spate of acquisitions have certainly reduced the competition intensity of the market.
22/11/08 Economic Times

To Read the News in full at Source, Click the Headline

Categories: Indian Aviation- In General Nov 2008