Let it fly with normalcy back there’s no case for regulating airline tariffs through price bands’

Let it fly with normalcy back there’s no case for regulating airline tariffs through price bands’

India’s aviation industry has had it tough since the outbreak of Covid. Operations were suspended for a couple of months in 2020 and resumption came with conditions attached. Given the nature of the health emergency, there were limits imposed on the number of seats that could be occupied in an aircraft. Simultaneously, GoI also extended assistance in the form of a price band for air tickets that initially provided a floor price when operating conditions were tilted against airlines. Even GST on domestic maintenance and repair was lowered from 18% to 5%.

But now, normalcy is back in domestic aviation. Restrictions on seating have been removed. The passenger load factor, therefore, has increased. On May 31, it ranged between 77% and 87% for the six large domestic airlines. Given the overall improvement, the lingering anomaly in the domestic aviation policy is the price band on air tickets that is applicable on a rolling basis for 15-day cycles. It is at odds with the March 1994 decision to deregulate tariff fixation in the aviation industry, a milestone in the liberalisation of the sector. There’s no case for regulating tariffs any longer and it should be freed.

An argument made by GoI in favour of tariff regulation is that it helps both airlines and flyers. Experience across multiple industries, aviation included, has shown that it actually ends up creating distortions which lead to rent-seeking behavior. If input costs, particularly aviation turbine fuel that normally represents about 40% of operating costs, are increasing, airlines should be free to price tickets to reflect it. With the imminent increase in competition in domestic aviation, some firms may want to use pricing as a tool to attract traffic. A regulatory floor price should not prevent it. Save for ensuring safety standards are met, there’s no case for micromanagement in aviation.