NEW DELHI:
Regulators in India are known to crack down when prices go up. The rationale
being that sky-high prices hurt consumers and help companies make supernormal
profits. But for the first time in India, a regulator has stepped in to prevent
companies from cutting fares.
Budget carrier SpiceJetBSE -0.77 % may have brought cheer to fliers with a scheme offering a million tickets for 2013 each, but the aviation regulator has ensured that other airlines, who wanted to follow SpiceJet, didn't go through with their planned cuts.
Officials in the aviation ministry said the Director General of Civil Aviation (DGCA) contacted all airline CEOs in the evening of January 11, the day SpiceJet launched the three-day scheme. He advised them against succumbing to the trend.
"The regulator told them that regular fliers would take advantage of the scheme rather than new ones, in turn poaching others' traffic," an official involved in communicating with airlines told ET.
High airfares throughout 2012 due to grounding ofKingfisher AirlinesBSE -0.07 % caused passengers to opt out of air travel, leading to a fall in traffic for the first time since 2009.
Budget carrier SpiceJetBSE -0.77 % may have brought cheer to fliers with a scheme offering a million tickets for 2013 each, but the aviation regulator has ensured that other airlines, who wanted to follow SpiceJet, didn't go through with their planned cuts.
Officials in the aviation ministry said the Director General of Civil Aviation (DGCA) contacted all airline CEOs in the evening of January 11, the day SpiceJet launched the three-day scheme. He advised them against succumbing to the trend.
"The regulator told them that regular fliers would take advantage of the scheme rather than new ones, in turn poaching others' traffic," an official involved in communicating with airlines told ET.
High airfares throughout 2012 due to grounding ofKingfisher AirlinesBSE -0.07 % caused passengers to opt out of air travel, leading to a fall in traffic for the first time since 2009.
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Airline
profitability improved and some of them earned higher margins. But with fliers
preferring cheaper options, airlines had to do something to bring them back,
especially from February-June, which is the lean season.
DGCA officials said they thought it right to intervene as fares would have become distorted and they had to protect the industry from bleeding any further, just like they do when fliers complain of sky-high ticket prices during peak seasons.
The move explains why IndiGo and GoAir, which were about to announce discounts, withdrew their plans.
Neil Mills, the CEO of SpiceJet, found it difficult to withdraw as the company had already advertised through newspapers and a nationwide press release.
While Air India CMD Rohit Nandan termed the SpiceJet scheme "suicidal", a senior executive from Jet AirwaysBSE 0.63 %termed it "absurd", saying they wouldn't match it.
"We decided not to follow them as I didn't think one can even recover input costs on tickets priced at Rs 2000," Nandan told ET.
The DGCA has been intervening in the functioning of airlines repeatedly since late 2010, either warning them against fare increases or setting up a monitoring cell to track ticket rates across the country.
The aviation ministry, which controls the DGCA, has also intervened by telling airlines that it will take the final call in clearing aircraft purchases.
The ministry constituted a fare-monitoring cell in November 2010 for the first time to protect consumers when airfares rose by 250-300% during peak Diwali season.
It was then that airlines were asked to furnish a monthly fare chart on every offered route to ensure transparency. In July 2012, the aviation ministry said it would constitute another fare-monitoring unit to ensure greater transparency. This has upset foreign investors who have turned wary of investing in Indian airlines.
DGCA officials said they thought it right to intervene as fares would have become distorted and they had to protect the industry from bleeding any further, just like they do when fliers complain of sky-high ticket prices during peak seasons.
The move explains why IndiGo and GoAir, which were about to announce discounts, withdrew their plans.
Neil Mills, the CEO of SpiceJet, found it difficult to withdraw as the company had already advertised through newspapers and a nationwide press release.
While Air India CMD Rohit Nandan termed the SpiceJet scheme "suicidal", a senior executive from Jet AirwaysBSE 0.63 %termed it "absurd", saying they wouldn't match it.
"We decided not to follow them as I didn't think one can even recover input costs on tickets priced at Rs 2000," Nandan told ET.
The DGCA has been intervening in the functioning of airlines repeatedly since late 2010, either warning them against fare increases or setting up a monitoring cell to track ticket rates across the country.
The aviation ministry, which controls the DGCA, has also intervened by telling airlines that it will take the final call in clearing aircraft purchases.
The ministry constituted a fare-monitoring cell in November 2010 for the first time to protect consumers when airfares rose by 250-300% during peak Diwali season.
It was then that airlines were asked to furnish a monthly fare chart on every offered route to ensure transparency. In July 2012, the aviation ministry said it would constitute another fare-monitoring unit to ensure greater transparency. This has upset foreign investors who have turned wary of investing in Indian airlines.
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