Skyrocketing Airfares: What Is the Solution?
By Manohar Manoj
Airfares in the country are currently at their peak. Over the past six months, a series of developments has created an atmosphere of deep disappointment among consumers in India’s rapidly growing air transport industry. Even during the festive season, the additional hike in airfares announced by airline companies has added further lines of worry to the forehead of the country’s professional middle class. The civil aviation industry claims that the war-like situation that has emerged in West Asia over the past six months has pushed up petroleum prices, thereby significantly increasing the cost of Air Turbine Fuel (ATF). The losses caused by the suspension of air services on several international routes have been recovered by raising fares on domestic air transport routes.
During the festive season, demand for air transport—the preferred mode of travel for covering long distances in limited time—increases substantially. Under these circumstances, civil aviation companies have attempted to take undue advantage of the imbalance between demand and supply of air tickets. The first increase in fares was announced by the leading air transport company, IndiGo Airlines, after which Air India, Air India Express, and Akasa also announced increases in their fares. These increases have been presented by the companies as fuel surcharges. Notably, ATF prices have risen from ₹121 per litre to ₹137 per litre. However, the companies have announced the fare increase only for tickets booked after 9 October.
It is worth noting that this is not the first time Indian airline companies have raised fares in the name of fuel surcharge. The fuel surcharge already in force—which ranged from a minimum of ₹275 to a maximum of ₹950—has been increased by ₹100 to ₹350, taking the total surcharge to between ₹375 and ₹1,300. Apart from domestic routes, fares have also been increased sharply on international routes: by a minimum of US$55 on West Asian routes, US$135 on European routes, US$215 on North American routes, and US$210 on Australian routes. Overall, an increase of ₹1,000 to ₹10,000 has been recorded on international routes.
In view of these new circumstances, the biggest question that arises is: can airfares in the country not be stabilised at a fixed rate over the long term? It is the nature of any service industry that when investment and infrastructure expand, the government provides incentives and concessions, and an environment of multi-player competition prevails, consumers always benefit. In such a situation, when civil aviation services are continuously expanding in the country, air travel is no longer an occasional luxury but has become a common necessity of professional life, it should be affordable for the people. If increases do occur, they should be logical and proportionate to the circumstances.
It is worth noting that, besides fuel costs, airfares are also increased due to airport handling charges at airports. Allegations have also been made against the public-sector undertaking, the Airports Authority of India, in this regard. Second, air traffic control (ATC), which is entirely under government control, also levies charges. All these charges are included in airfares. Any increase in any of these components leads to an increase in airfares. In addition, because of the flexible-fare system adopted in air services, passengers are forced to pay much higher fares at the last moment or during emergencies—as they are having to endure during the current festive season.
Looking at the past, only the public-sector undertakings Air India and Indian Airlines existed in India’s civil aviation industry. Subsequently, under the new economic policy and the open-skies policy, licences for airline operations were granted to private companies. Later, the government merged its two companies into Air India. Air India is also no longer in government hands; it is now owned by the Tata Group. In other words, only private companies operate in the domestic aviation industry today. However, the history of private companies’ operations in civil aviation has not been uniform. Several private companies have also shut down due to losses and controversies, including Jet, Sahara, Kingfisher, and Go Air. At present, IndiGo, SpiceJet, and the Air India Group are operating in the country’s aviation sector, with IndiGo alone holding a market share of more than 60 per cent.
It is worth noting that airport construction in the country has expanded rapidly. There are currently 165 operational airports in the country, of which 32 are international airports. About 30 airports are owned by state governments and private companies. The country’s major airports—Delhi, Mumbai, Bengaluru, Hyderabad, Chandigarh, Kannur, and Nagpur—are under private ownership, and the shareholding of the public-sector undertaking, the Airports Authority of India (AAI), in the first four is merely 26, 26, 13, and 13 per cent respectively. At Chandigarh airport, AAI’s shareholding, together with the Punjab government, is 51 per cent; at Nagpur it is 49 per cent; and at Kannur it is merely 7.47 per cent.
Thus, a large segment of civil aviation services is entirely in private hands. While the operation of medium and small airports rests with the government company AAI, the country’s major airports are under private ownership. In such an unequal situation, the establishment of an airfare regulatory authority in the civil aviation sector becomes extremely necessary. When we are continuously developing air transport as major infrastructure in the country, encouraging most citizens to travel by air, and expanding civil aviation services to the country’s remote areas—while speaking of broadening civil aviation’s role in making India a developed nation—then a regulatory authority that keeps passenger airfares within reasonable and logical limits of increase becomes essential. Under the new economic policy, we have strengthened the model of private-sector incentives and partnership with public-sector undertakings through several regulatory authorities; the same need has now arisen for the air travel industry. Because this sector involves different components—establishment, maintenance, and upkeep of airports, air traffic control, and aviation fuel (ATF)—if oversight of all these aspects is entrusted to such a regulatory authority, a better relationship will develop between this industry and its consumers.
At present, India ranks third in the world in the number of air passengers. Before the coronavirus pandemic, 144 million people travelled by air in the country—a record that was broken in 2023 with 152 million passengers. However, a decline in the number of air passengers was recorded in August this year. Clearly, airfares are no longer affordable for air travellers. Any of the reasons mentioned above could be responsible. But the establishment of a regulatory authority would create a fair environment for air passengers, while also ensuring faster expansion and better coordination of this essential infrastructure of India.