The single most debated topic in aviation circles across the world is rising airfares. Passengers constantly crib about the rising airfares, completely oblivious to various other issues circling the cause, like rising jet fuel prices, supply chain woes, maintenance issues, geopolitical crises, etc., that the airlines are dealing with. 

Airlines across the globe are already reeling under wafer-thin margins, leading to many airlines eventually grounding operations and filing for bankruptcy. On this backdrop, rising airfares and oligopolistic practices in the aviation sector were raised today in Rajya Sabha.

The public constantly demands to know, why is the government not intervening in rising airfares?

To this the government’s response was simple: Airfares are ‘governed’ under the Competition Act, 2002, and anti-competitive practices are monitored by the Competition Commission of India (CCI).

The response came in to a question asked by John Brittas as he questioned the government on excessive airfares and punctuality issues in airline operations. The query specifically addressed whether Rule 135(4) of the Aircraft Rules, 1937, empowers the Directorate General of Civil Aviation (DGCA) to intervene in such cases.Minister of State for Civil Aviation Murlidhar Mohol highlighted that airfares are determined by market demand, supply, seasonality, and operational considerations. 

“While the government refrains from regulating airfares to maintain competitiveness, the Competition Commission of India (CCI) keeps anti-competitive practices, such as cartelisation, in check,” Mohol said.

 Meanwhile, the minister also clarified that airlines are sensitised to ensure fare reasonability, especially during peak seasons. The DGCA has set up a Tariff Monitoring Unit (TMU) to monitor predatory or excessive pricing by airlines, ensuring compliance with Rule 135 of the Aircraft Rules, 1937. 

“Although the government does not regulate airfares directly, it ensures the market remains competitive and passenger interests are safeguarded,” Mohol added.

In instances of exorbitant pricing, government intervention includes shifting capacity to high-demand sectors to stabilise fares, he added.Meanwhile, in a recent interview, Marie Owens Thomsen, Chief Economist, IATA, said that airlines are price takers as they do not have an influence on the prices they pay. She further added that carriers' need to diversify their revenues is complicated by slim profit margins as well as weak balance sheets.In a fast-growing aviation market like India, where the air traffic demand is on the rise, there are persistent concerns about airfare trajectory and suggestions from various quarters to make air tickets more affordable.

Discussing overall airfares and the costs of airlines, Thomsen said airlines do not have any influence on the prices they pay.

“There are too few aircraft manufacturers and oil companies. Whatever supplies we are looking at upstream, we are price takers, and downstream, we have the hyper-competitive environment where all customers can see all fares from all airlines at all times. So, we always compete in price, as airlines are price takers upstream and downstream; it leaves them with very little in the middle,” Thomsen added.

 IATA’s recent study has shown that airfares have risen at a slower pace than consumer prices (measured by the Consumer Price Index, CPI) over the past decade, indicating that air ticket prices have not fully grown with inflation in comparison to jet fuel costs.
 
The recently released IATA Report on ‘Airfare, jet fuel price, and inflation’ explored trends in airfare, jet fuel prices, and inflation from 2015 to 2024, highlighting how airfares have generally increased post-pandemic but remain lower in real terms compared to 2015 due to inflation and the sharp rise in jet fuel prices. 

Jet fuel, which accounts for approximately 30 percent of airlines’ operational costs, has significantly outpaced general consumer inflation, adding substantial financial pressure on airlines. While domestic airfares in key markets such as the US, China, and India have remained stable or below 2015 levels, international fares were more volatile, surging during periods of capacity constraints and strict border controls, particularly in China and Hong Kong.

During a discussion in the Rajya Sabha on rising airfares in the country, Minister of State for Civil Aviation Murlidhar Mohol stated that the government typically avoids regulating airfares to preserve market competitiveness. However, he emphasised that the government remains vigilant and intervenes when necessary by reallocating capacity between sectors to curb excessive pricing.He added that this year, the airfares have moderated relative to last year.

With the enhancement of capacity by the induction of more aircraft fleets, modernisation of airports, and development of new airports, domestic passenger traffic has increased to 153,674,310 in 2023-24 as compared to 136,028,656 in the year 2022-23,” he said in a written reply.

“Even in the current financial year 2024-25, as of October, domestic passenger traffic has reached 93,002,510, surpassing the corresponding figure of 87,995,187 for the fiscal year 2023-24, thereby reflecting an impressive growth rate of 5.7 percent,” he added.

Responding to queries from CPI-M member John Brittas from Kerala, the minister highlighted the complex dynamics of the Indian aviation industry, stating that the government acts as a facilitator by creating an enabling environment to support the sector’s growth. He further explained that airfares are not regulated by the government, allowing airlines the flexibility to determine fares based on their operational requirements while ensuring compliance with Rule 135 of the Aircraft Rules, 1937.

He stated that airlines have been advised to ensure fair pricing while setting airfares, keeping passengers’ interests in mind. Notably, a decrease in airfares was observed across various sectors during festival seasons. 

The Directorate General of Civil Aviation (DGCA) has established a Tariff Monitoring Unit (TMU) to monitor predatory or excessive pricing by airlines. The minister further explained that airline ticket prices are driven by the demand-supply mechanism and are regulated under competition laws, specifically the Competition Act, 2002. Anti-competitive practices are monitored and addressed by the Competition Commission of India (CCI).