In line with the decision to slowly reopen parts of the economy, on Wednesday the Centre announced the resumption of domestic flights from May 25 in a calibrated manner. The move will come as much-needed relief for the beleaguered airlines industry — commercial flights have been suspended since March 25, with only cargo and special flights being allowed to operate in the intervening period. To begin with, airlines will operate with only a fraction of their flights, slowly scaling up thereafter. However, with the virus continuing to spread, and households likely to curb their discretionary spending owing to the prevailing economic and health uncertainty, it is difficult to estimate the extent to which demand for air travel will revive in the near term. Metros such as Delhi and Mumbai, which are the worst affected by the virus and account for an overwhelming share of the total air traffic in the country, may not see demand recover meaningfully in the near term. Till the pandemic scare abates, routes where the virus spread is more are likely to be less in demand. Further, as India will not be issuing any visas anytime soon, international operations of the domestic carriers will also remain shut.
The Central government has also taken a decision to regulate airfare, with a range being prescribed for each route. For instance, the Delhi-Mumbai airfare is capped between Rs 3,500 to Rs 10,000. The government’s rationale for doing so is two-fold: First, to ensure that tickets don’t become exorbitantly priced for the consumer, and second, to prevent the stronger airlines from using their financial muscle to indulge in pricing that will hurt the financial viability of the competition, driving them out. While extraordinary times may well call for extraordinary measures, it must be pointed out that price controls are counterproductive in the long run. They inevitably lead to problems of shortages, rationing, deterioration of product quality, and even black markets. As such, governments should avoid the temptation of setting prices and, instead, allow the market to function. It’s best not to distort market prices. Issues of “predatory pricing” are best left to be examined by the Competition Commission of India, which takes into account market dominance, as well as underlying cost structures. Perhaps realising the consequences of such interventions to “correct” prices, the government has also notified that the fares will be fixed only for a period of three months.
With the virus yet to be contained, airlines as well as airports will need to ensure that the standard operating procedures on health and safety of passengers are followed strictly. The onus is also on passengers to ensure compliance with the laid out protocols. Discipline will need to be maintained, and norms of social etiquette will have to be adhered to strictly. The critical challenge is to control the spread of the virus, while allowing economic activities to restart.
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