The Indian airline companies reporting huge losses in the second quarter of 2019-20, Aviation Minister Hardeep Singh Puri said that some predatory pricing is taking place in airfares and the government is concerned that if this continues, more airlines might shut down.
The remark comes amid some strong competition in the country’s aviation sector, with airlines struggling against high fuel prices and price wars. One of the concerns here being that if there is predatory pricing, then the airlines will stop functioning, Aviation Minister Puri, addressed the issue by highlighting the demise of Jet Airways and kingfisher, questioning the future of Air India. With one of the concerns is that if there is predatory pricing, then the airlines will stop functioning, IndiGo and SpiceJet, India’s two biggest airlines have reported INR 1,062 crore and INR 463 crore loss respectively in the second quarter of 2019-20.
On July 3, Indian Civil Aviation Minister Hardeep Singh Puri told his country's upper house of parliament that the airspace closure had cost Indian airlines more than $80.1m.
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After ruling out regulatory intervention, for now, Aviation Minister Puri added that under current regulations, it is the prerogative of airlines to establish their process of determination of airfares. As, such, the government does not interfere in their commercial affairs. There have been instances where airlines are pricing their tickets at a level which is lower than their operational cost. Even though such measures may benefit them in the short term, the long term effects hurt the entire aviation industry.
Airlines should charge realistic fares instead of predatory pricing.
According to aviation consulting firm CAPA, Indian airlines are expected to lose over USD 600 million (INR 4,273 crore) in the financial year 2019-20 as compared to a previous estimate of full-year profit of USD 500-700 million (INR 3,561-4,985 crore). SpiceJet owner Ajay Singh last month has raised a similar argument saying that competitive pressure forcing a low-fare regime will lead India’s aviation sector to a bloodbath. Drawing example from the Indian telecom sector and firms, Singh added that “ it is important that we learn lessons from the telecom sector. We need to take steps urgently and stop selling tickets at prices that don’t even cover operating costs”.
Further adding onto the issue, Aviation minister Puri concluded that “ we need to bring equilibrium within the market. Can’t say predatory pricing is the only reason of ill-health of airlines, it is one of the reasons. After discussion with airlines, the trend of predatory pricing has reduced. Our advice to airlines is to charge realistic fares”.