DGCA blocks SpiceJet's promo offer, says it breaches govt pricing order

Topics SpiceJet | DGCA | Lockdown

The government had set upper and lower limits on fares for three months when flights resumed on May 25 which was extended till November 24
Indian aviation regulator — Directorate General of Civil Aviation (DGCA) — has asked low-cost carrier SpiceJet to stop the promotional sale offer launched on Monday, citing price-cap violation and floor imposed by the government in May.

As part of the package, SpiceJet was offering one-way fares starting at Rs 899 (excluding taxes) and a complimentary voucher of up to Rs 2,000, which could be used for future booking. 

 The government had set the upper and lower limits on fares for three months when flights resumed on May 25. While initially the cap and floor were till August 24, last week they were extended by three months till November 24.

“The DGCA had sought explanation from SpiceJet on why the promotional offer is in violation of the cap and floor. Following that, the regulator has asked SpiceJet to withdraw the offer,” said a government official in the know.

A SpiceJet spokesperson confirmed the communication from DGCA. “SpiceJet has complied with DGCA guidelines,” he said.

Under the cap and floor, flights between cities were segmented into eight parts, depending on the duration an upper and lower band was fixed against them.

While the upper price limit is aimed at preventing any sharp rise in fares due to pent-up demand, the lower limit will help ensure the financial viability of airlines does not suffer amid high costs, Civil Aviation Minister Hardeep Singh Puri had said, clarifying the rationale behind the decision.

A SpiceJet executive said the offer was not in violation of the DGCA rules. “The airline had clearly mentioned that under the 1+1 offer, passengers buying a ticket will get a voucher of up to Rs 2,000. Also, the passenger can only use the voucher for flights where the fare is at least Rs 6,500. It was not a violation. However, we will comply and take out the offer,” the executive said.

Experts said the incident reflects the hurdles created when the government tries to interfere with commercial decisions in a free market.

The offer by SpiceJet was to shore up liquidity at a time when airlines are facing a crisis. There was slow demand in July despite recommencement of operations over two months ago. Airlines operated at a much lower capacity at around 27 per cent in July, compared to July 2019 levels, but there was marginal increase over the 25 per cent capacity deployed in June.

Aviation consultancy firm CAPA said such a system is not in favour of either passengers or airlines as it impacts the airline’s ability to stimulate the market in a slowdown situation.

At its recent earnings call, IndiGo Chief Executive Officer Ronojoy Dutta strongly lobbied for removal of the cap and floor, saying that it will give more room to companies to price according to demand and supply. 

“Price of a morning ticket to a place cannot be similar to the price of an afternoon ticket. We should be able to leverage that and attract demand,” said Dutta.

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