Amid pain for airlines from West Asia war, Govt to remove domestic airfare caps imposed during IndiGo’s December meltdown

With airfares skyrocketing due to the widespread disruption in IndiGo’s flight operations in early December, the government has stepped in to regulate non-business class airfares for all airlines by prescribing fare caps between Rs 7,500 and Rs 18,000 per seat depending on the distance flown on domestic flights. The airfare caps were Rs 7,500 for a stage length of up to 500 km, Rs 12,000 for 500-1,000 km, Rs 15,000 for 1,000-1,500 km, and Rs 18,000 for over 1,500 km.

At the time, the Ministry of Civil Aviation (MoCA) had said that the fare limits would be in place “until fares stabilise or till further review”. Although IndiGo’s operations stabilised and the crisis eased within a few days, the caps continued to remain in place.

In its order on the removal of airfare caps, MoCA said that airlines are required to exercise pricing discipline, act responsibly, and ensure that fares remain reasonable, transparent, and commensurate with market conditions. Carriers have also been asked to ensure that passenger interests are not adversely impacted with the removal of airfare caps. Airfares are deregulated in India and are decided by market forces, but the government can intervene to regulate fares if major disruptions hit the sector. For instance, airfare bands were imposed by the government during the COVID-19 pandemic.

It also warned airlines that any instance of excessive or unjustified surge in fares, particularly during periods of peak demand, disruptions, or exigencies, will be viewed seriously. MoCA will continue to closely monitor airfare trends on a real-time basis, and reserves the right to take regulatory and administrative measures, including re-introduction of fare controls, in public interest, the order said.

Like their global peers, Indian are operating a heavily truncated schedule to and from West Asian airports due to the airspace restrictions and airport closures in the region amid the war there. This is expected to hit their revenues on these high demand routes. Moreover, carriers with long-haul operations—Air India and IndiGo—are being forced to take much longer and circuitous flight paths for their flights beyond West Asia, leading to longer flying times and additional fuel burn.

Prices of jet fuel—which accounts for over 40% of Indian airlines’ operational cost—have also shot up in the international market. The rupee has also fallen to historic lows, which would further lead to an increase in Indian airlines’ dollar-denominated costs. Most major Indian carriers have already announced fuel surcharges on airfares due to the fallout of the West Asia crisis.