The government’s decision to remove the restrictions on airfares, which were imposed as a temporary measure in December last year in the wake of severe disruptions caused by extensive cancellations of flights by IndiGo Airlines, is predictable. So is the criticism of Opposition parties. At that time, due to a spurt in demand caused by disruptions, the ticketing software and its dynamic pricing sent the airfares through the roof. The government limited it to Rs 7,500 for up to 500 km and Rs 18,000 for 1,500 km and above. Of course, it was much higher when the User Development Fee and other related charges were added. The Union government tightened the screws on airline companies by imposing caps on airfares to curb excessive profiteering.
Now, the Ministry of Civil Aviation is convinced that the situation has stabilised and therefore it could allow the play of a market-driven pricing model. Given the propensity of airline companies to tweak the system to jack up airfares, the government has rightly cautioned them that it will monitor the situation and would not hesitate to intervene in the event of unjustified surges. It will have to be seen how effective the government’s warning will be. However, the cavalier attitude of IndiGo Airlines was evident as it leveraged its dominant market position. So much so, the government had to clarify that it had not succumbed to any external pressure in keeping the Flight Duty Time Limitation guidelines in abeyance, which eased pressure on IndiGo. While the government tried to show to the world as to who had an upper hand by flexing its muscles, it was obvious that the airline had tried to game the system.
Now, the government remained silent about the impending crisis in the airline industry due to the ongoing conflict in West Asia. Already, media reports indicate airline companies worldwide would have incurred estimated losses to the tune of $50 billion. The head honcho of the Air India group revealed that the financial impact is yet to be fully felt. Besides cancellation of flights or taking longer routes, the price of jet fuel too has been going up sharply, which could lead to increasing costs eating into profits and erosion of margins. Not surprisingly, the airline companies are contemplating hiking the fuel surcharges.
At the time of the December 2025 crisis, everyone raised the issue of a duopoly-like situation in the civil aviation sector and stressed the need to address it. The government, on its part, merely fast-tracked pending approvals for new airlines, as that would reduce dependence on one airline which has been dominating the market. However, it will take a couple of years before operations of new airlines begin and even longer for impact to be visibly felt.
But the real issue is structural, as many airlines have been incurring losses and eventually either their ownership changes hands, or they close down. IndiGo has cracked the code of profitability. Other airlines need to take a leaf out of the success stories of airline companies in India and abroad. Air India is reportedly at it. Given the importance of the industry, the government should consider implementing a new round of structural reforms to improve its viability and sustainability.