Market forces should decide airlines’ pricing norms: Experts (News Analysis)

New Delhi, June 12 (IANS) Even as passengers looked forward to the government implementing its new proposals to regulate cancellation, refund and baggage norms of domestic airlines, aviation industry experts warned that potentially this can even push up fares and that pricing policies must not be micro-managed.

Industry observers whom IANS spoke to said the new proposals tend to tweak the free-market pricing mechanism which could lead to negative consequences for the sector — as will be the case once Saturday’s proposals unveiled by the government come into force to rein in indiscriminate practices of some domestic passenger carriers.

“The government should refrain from getting into micro-management issues like free baggage allowance, baggage-fee per kilo. It is best left to market forces,” said Amber Dubey, partner and India head of aerospace and defence at global consultancy KPMG.

“Airlines that over-charge or inconvenience passengers will anyway get punished through word of mouth and social media. The government should consider stepping in only in extreme cases — but this definitely appears to be an overkill,” Dubey told IANS.

On ticket cancellation fee, for which the new proposal is that airlines would return all taxes and not charge a rupee more than the basic fare, Dubey said: “A fee of Rs 1,000 or the base fare, whichever is lower, appears reasonable and can be revised from time to time.”

Passengers had some reasons to cheer as they were piqued by the policies followed by some airlines.

“To pay a re-scheduling charge of Rs 2,000 on a Rs 4,500 ticket is ridiculous. I hope the new measures take note of this aspect as well. Plus, Rs 300 or more for a kilo of excess baggage is also very high. A cap of Rs 100 sounds reasonable,” said G. Natarajan, a resident of Madurai.

On Saturday, Civil Aviation Minister P. Ashok Gajapathi Raju unveiled the new proposals and said they will be on the website of his ministry for 15 days to get the opinion of the stakeholders. Following that, these will be implemented as soon as possible.

The highlights of the proposals include refund of all taxes, levies and user and airport development fees in case of no-shows and cancellations, maximum of Rs 100 per kg for excess baggage of up to five kg beyond the 15-kg limit, and sharp enhancement of compensation in the case of denial or boarding due to over-booking.

“Under no circumstances cancellation fee shall be more than the basic fair,” Raju said, adding the onus of refund must be with the airline, even if the ticket is booked through agents or travel portals. This also ought to be done within 15 working days in case of domestic travel and 30 working days in case of international travel.

“It shall also be the prerogative of a passenger to decide whether to get cash refund or hold the amount in credit.”

For denial of boarding, no compensation is proposed if alternate flight is arranged within an hour. But it can go up to 400 per cent of booked basic fare plus airline fuel charge, subject to a maximum of Rs 20,000, if an alternative flight is arranged beyond 24 hours. Same applies if the passenger declines an alternative flight, the minister said.

What is the quantum of such occurrences?

Data for April this year with the Directorate General of Civil Aviation, the industry watchdog, suggests 1,149 people were denied boarding on domestic flights, with a compensation of Rs 40.74 lakh.

There were 5,025 people who cancelled their tickets with a refund of Rs 25.10 lakh and 40,659 who were affected by delays and were compensated with Rs 67.4 lakh.

Amrit Pandurangi, Senior Director of Deloitte in India, also felt the government should allow the market forces to decide on the pricing mechanism of an extremely competitive industry like the airlines sector. “It’s not a good idea for the government to get into the pricing mechanism of an industry which is already very competitive,” Pandurangi told IANS.

“Rather, the government must try to get the cancellation fees of airlines widely published so that passengers can make an informed choice.”

Sharat Dhall, President of, warned that the proposals might lead to an increase in air ticket prices. “These are positive proposals, but they are expected to impact very few passengers. They might also lead to the overall ticket prices increasing, as airlines will seek to compensate this loss of revenue by passing it on,” Dhall said.

The new proposals, he said, could also retard growth.

“Though the steps are well meaning, the government should rather focus on long term objectives — like development of infrastructure and regional connectivity — to give a boost to passenger traffic and expand the market which is still hugely under-penetrated.”

But Rajiv Chib, Director (Aerospace and Defence) of PwC, told IANS: “What has been suggested is reasonable and in line with global best practices. These measures fall less in the domain of regulating fares and more in the domain of improving customer services.”

(Rohit Vaid can be reached at



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