Tuesday, June 01, 2021

Flights at one-fourth of pre-COVID levels, but govt caps airline capacity at 50% level

Effective June 1, 2021, the capacity in Indian skies will be capped at the 50 percent level again. Last May, domestic aviation in India had restarted with a cap of 33 percent capacity. In stages, it was upped from 33 to 45 percent, 60, 70 and 80 percent until last week when it was cut sharply to 50 percent.

Along with the constraints on capacity, the government has also increased the floor price on fare caps. While this is the third revision in fare caps, this is the first cut in the capacity cap -- having increased it all along the past.

With the cap on capacity at 50 percent, there won't be any immediate cut in capacity and that is why the decision raises more eyebrows. With flights already at one-fourth pre-COVID levels, what was the need to cap capacity?

February 2020 was the last full month of operations before lockdown. Airlines in India flew an average of 425,179 daily passengers on 3,135 domestic flights. On May 30, airlines flew 70,941 passengers across 870 flights – 16.68 percent and 27.75 percent, respectively, of pre-COVID numbers.

Citing an increase in input costs, primarily Aviation Turbine Fuel (ATF), the government increased the floor price on fare cap without changing the upper limit. Starting June 1, the base fare will increase across the country. The argument for it is that there are very few passengers across the country and there is no need to increase the ceiling price since flights aren’t full. Also, since discretionary travel is not around, the increase in fare won’t impact demand directly.

The reality could be a tad bit different, though. For April, the data declared by the regulator, the Directorate General of Civil Aviation (DGCA), shows that Kolkata - Delhi, Kolkata - Chennai, Kolkata - Port Blair, Delhi - Leh, Delhi - Patna, and the Delhi - Dehradun routes, among others, saw some seats being sold in the highest fare bracket.

While the percentage of seats is few and far between, a proportional increase in the highest fare would have helped the airlines, and not impacted a lot of passengers at the same time.

On the other hand, short-haul flying has become expensive. Seats on sectors like Bengaluru - Kochi or Bengaluru - Chennai are now selling at over Rs 2,900. These sectors were available for Rs 1,200 not so long ago, pre-COVID. Indeed, these rates were to stimulate the market and attract more traffic--a strategy that won't work in current times.

The increased airfare could see a lot of passengers look for alternative modes, especially shared vehicles where co-passengers are known. The benefit of road travel over air travel in a few cases has been the states enforcing negative RT-PCR results for air travel but the same not being implemented for road travel.

01/06/21 Ameya Joshi/Moneycontrol

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