Carriers' input costs are rising due to weak rupee and rising crude oil price.
In a passenger-friendly move, the civil aviation ministry has proposed a cap on cancellation fees but airlines are not in favour of the move and said this could lead to fare hikes.
Carriers’ input costs are rising due to weak rupee and rising crude oil price, but fares have not risen and are 15-20 per cent lower on a year-on-year basis.
Increasing ancillary revenue (revenue earned from cancellation charges, or excess luggage, etc) will help us keep the fares lower, senior airline executives said on condition of anonymity.
A Vistara spokesperson said market forces should be allowed to prevail and airlines be permitted to decide on cancellation fees and baggage allowances considering the competitive nature of the sector.
The civil aviation ministry has proposed to cap cancellation charges levied by airlines following passenger complaints.
With the airlines discounting to fill up their flights, fares have dropped 20-25 per cent.
A couple of months ago, airlines increased the cancellation fee to Rs 2,000-2,250.
The Air Passengers Association of India (APAI) complained about the hike and the Directorate General of Civil Aviation promised action.
Along with a cap on cancellation charges, the ministry is also mooting higher compensation in case of denied boarding (currently Rs 2,000-4,000) and enhanced check-in baggage allowance.
The ministry is consulting the proposals with airlines and a final decision is yet to be taken.
“Customers are our main priority. We are working on a lot of suggestions on these issues and the airlines will be certainly taken on board before any decision is made,” civil aviation minister Ashok Gajapathi Raju told reporters in New Delhi on Wednesday.
The airlines, however, are not so enthusiastic about the government intervention.
“We believe an environment where market forces are allowed to prevail would strengthen the Indian aviation sector. Having said that, our customers are at the heart of our operations and we believe they should be compensated appropriately in the event of denied boarding,” said a Vistara spokesperson.
Other airlines did not respond to email queries on the issue.
“We have some of the lowest airfares in the world, but have high costs. Airlines need to make revenue somewhere and by international standards, these fees are very low,” said an airline executive.
“Capping fees is a retrograde step,” said another executive, adding that ancillary revenues were helping airlines meet costs.
Yatra.com president Sharat Dhall said while a cap on cancellation fee will benefit a small segment of travellers, a larger section could get impacted due to possible fare hike and this could impact travel demand.
APAI president D Sudhakara Reddy said the government should focus on passenger rights while aviation expert Amber Dubey said cancellation fees should be reasonable.
“We have been repeatedly complaining to the government on the issue. Cancellation charges are high and compensation given to passengers in case of boarding denial is low. We also want airlines to work out an arrangement among themselves so that a passenger who is denied boarding by an airline is accommodated on another airline. The refund and compensation amount, which is offered now cannot cover last-minute ticket fares,” Reddy added.
“Any cancellation has an administrative and financial cost attached to it and hence a cancellation fee. Conversely, airlines can sell a cancelled seat to a last-minute traveller at a premium and cover up the loss. Considering the current airfares, a cancellation fee of Rs 1,000 appears reasonable. Anything more than that creates an avoidable loss of goodwill for the airline,” said Amber Dubey, partner and India head of aerospace and defence at global consultancy KPMG.
TROUBLED SKIES
- The civil aviation ministry has proposed a cap on cancellation fees
- However, airlines are not in favour and say that the move could lead to rise in airfare
- Carriers’ input costs are rising due to weak rupee and rising crude oil prices, but fares haven’t risen
- Ancillary revenue earned from cancellation charges, excess luggage, etc help airlines keep fares lower
- A Vistara spokesperson said airlines should be allowed to decide on cancellation fees considering the competitive nature of the industry
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