Government of India has warned airlines against any further hike in airfare. The airlines in India have come out with the proposal to increase the prices after they were asked to submit their planned price bands. As per the proposal sent to the aviation ministry and the DGCA (Directorate General of Civil Aviation), the airfares might see a hike up to 300% from the current level. According to the new proposal by the airlines, the distance upto 750 KM could cost upto Rs. 18,500, Rs. 19,500 for the distance between 750 KM 1000 KM and for above 14000 KM the fares could go up to Rs. 40,000. This makes it cheaper to fly to London or Paris from Delhi than to fly to Mumbai. The main reason which has been attributed to this step is that airlines are taking advantage of the massive demand supply crunch in the aviation sector.
Before the proposal submission in December 2010, the fares of some of the airlines went upto 25% during Diwali season in November 2010 and government wants to make sure that this does not happen during the Christmas season again. On the other hand airlines contend that there was a huge drop in flight and seat availability during the year 2008 and 2009. The domestic airlines were flying abroad at the cost of cutting their number of domestic flights because of the shortages of aircrafts. This happened as during the recession times, the airlines could not borrow the aircrafts. The Aviation Turbine Fuel (ATF) prices also increased during the recession period which worsened the profit figures of the airlines. The key players in the industry such as Air India, Kingfisher Airlines and Jet Airways suffered huge losses during the FY 2009-10. Air India reported a loss of Rs 5,551 crore in 2009-10, whereas Kingfisher and Jet has registered losses of Rs.419 crore and Rs.406.7 crore respectively for the second quarter of the 2009-2010 .Now when the recession period is over, airlines are covering up the losses incurred by increasing the airfares. The way to cover the losses differs from airline to airline. Some airlines are in real hurry to cover up the losses by increasing the prices rapidly and are charging more that what the other carriers are charging. While other airlines charge high fares for last minute bookings.
DGCA along with aviation ministry rejected the proposal for a massive hike in the airfares and warned them that the strict action will be taken against them. Besides the warning, government has also proposed to establish a Civil Aviation Economic Advisory Council, to advice DGCA on financial and economic issues in the aviation sector and also to safeguard the interest of the passengers. The proposed council will include ministry of aviation, DGCA, top executives of airlines, bodies like FICCI and CII. Additionally, airlines have been asked to present a transparent and clear picture of the level of fares which are being charged on particular day and to intimate the same to the passengers (in advance) as well.