“According to our analysis, fares have a lower floor and cap than the one prescribed by the government. Airline fares are at a discount of 0-55 per cent on median fare basis and 32-58 per cent on average fare basis. Thus, we believe that temporarily regulated fares would at least not impact if not boost the current pricing of airlines,” analysts at Motilal Oswal said.
However, the industry fears that despite the government saying that the cap and floor will be for three months, it may extend it arbitrarily. “The aviation sector has suffered a massive financial trauma. Market-based pricing is the best medicine to nurse airlines back to health quickly,” said Anand Stanley, chairperson, civil aviation
A second airline executive, however, said: “People are desperate to travel at least in the initial few days. And, they are scared to travel in train. So, I think there will not be any problem with the floor.” However, he said that when demand is muted and minimum fare is higher than what it is, the weakest or least-attractive player suffers the most because they cannot use pricing as a tool to steal market share.
Flights between cities that are under 40 minutes have been classified under section one, while those under 40-60 minutes are under section two. Section three consists of destinations 60-90 minutes apart by flight, section four comprises cities 90-120 minutes apart, and section five consists of cities 120-150 minutes apart. Destinations between 150-180 minutes and 180-210 minutes have been classified under sections 6 and 7, respectively.