Business

Fare Is Foul?

DGCA warns private airlines on price swing

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Fare Is Foul?
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In An Air Pocket

  • Airfares have swung from very low to very high many times this year
  • The DGCA is now focusing on airlines trying to manipulate prices
  • The government is also keeping a watch on possibility of cartelisation
  • Private carriers insist an increase in demand has led to the high prices
  • DGCA has threatened to throw the law book at airlines, but there's no confidence in its ability to enforce

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Wild swings in airline ticket prices—with a trip sometimes costing four times the normal amount —has made the Directorate General of Civil Aviation (DGCA) sit up. This year the overseeing agency for the sector has issued four directives (in February, June, August and September) to private airlines for advertising low airfares but later adding large extras. Sure, such directives have appeared in previous years too—but never have there been so many in such a short time span.

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That’s clearly causing a fair bit of turbulence. Apart from issuing a directive to the airlines to stabilise prices, the DGCA is looking carefully into the possibility of cartelisation. “The cost of operation of scheduled airlines on account of various constituent elements has not undergone any significant change in the current weeks as compared to the week ending September 6, ’09,” says the latest directive. Therefore, it goes on to add, “the tariffs being charged by the scheduled airlines were excessive in nature”.

Price spikes was seen earlier this year when aircraft fuel prices rose globally. While the government did not object to a temporary price hike, it took note when airlines continued to keep those prices high even after global fuel prices stabilised. While the notice may bring immediate compliance by most carriers, it does not ensure a control on hikes for a long period of time. Clearly, there’s a thin line between naturally high prices and manipulated ones. It’s tough to conclusively prove manipulation too. But the government insists it is “serious” this time and is keeping a close vigil.

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Significantly, the DGCA is now also wielding a big stick. Its latest directive reminded airlines that according to the Aircraft Rules, 1937, non-compliance can invite a fine of Rs 5-10 lakh—and violators can even face a two-year jail term. That’s a first. “There are effective laws in the country on competition and these can be applied if required,’’ says Brijesh Kumar, former civil aviation secretary.

In their defence, private carriers say the recent jump in ticket prices (a Delhi-Mumbai ticket cost Rs 17,000 in early September while the normal price is Rs 4,500) was due to the Jet pilot strike. They also claim the rise wasn’t four times more than the normal but a modest 10-12 per cent. “There was a shortage and other operators did increase prices but that was not manipulative. It was to accommodate demand,’’ avers Jet Airways executive director Saroj K. Datta.

Earlier this year, the ministry of civil aviation had warned private carriers against forming a cartel in a bid to raise prices. The Competition Commission of India, an industry watchdog, has also begun investigations into the code-sharing agreement between Jet Airways and Kingfisher to check for possible cartel-like behaviour. The two airlines had decided to jointly manage fuel, ground handling, cross crew-use and rationalisation in October ’08. “Many changes have taken place in Indian aviation in the past 2-3 years and one cannot rule out an attempt at cartelisation. We have to be watchful,’’ says a ministry of aviation official.

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Obviously, the airlines vigorously deny any such attempt. “This is a high-profile industry where the consumers can bring this (cartelisation) to the notice of the government,” says Datta. Many private carriers also feel the DGCA intervention is unnecessary since consumer demand determines airfares. “For a regulator to say it is exorbitant is not fair. These directives are in any case taken as advisories and cannot always be implemented,’’ says a senior manager of a private carrier. It remains to be seen if the DGCA takes on this widely held view.

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