Expensive flights, struggling airlines: Why India's airfare crisis has no easy fix for passengers

Festive travel has once again exposed the sharp swings in India's airfares, with tickets on some major domestic routes costing substantially more than a year ago. Average one-way fares for travel between September 1 and November 10 were up 68% on Delhi-Hyderabad, 51% on Mumbai-Kolkata and 39% on Delhi-Goa, ET reported two weeks ago when the festive season was beginning.

A PIL filed last year against sharp fluctuations in airfares prompted the Supreme Court to question the Centre over safeguards against arbitrary fare increases. The government has now prepared rules that, according to a sources-based report in ET, will preserve market-based pricing but allow intervention during extraordinary situations. The dilemma is that passengers need protection from extreme price spikes, but India's aviation industry is not robust enough to make across-the-board fare controls an easy solution. The government appears to be choosing a middle path.

Also Read: Supreme Court asks Centre to submit final airfare rules by November 16

When India deregulated airfares

India deregulated domestic airfares in 1994, allowing airlines to set prices according to operating costs, service characteristics and reasonable profit expectations. The policy shift helped replace a tightly controlled market with one in which private carriers could compete on price, network and service. The growth of low-cost airlines subsequently widened access to flying, bringing air travel within reach of many people who had previously depended on trains.

The government's argument against general fare caps has consistently been that they could undermine this competition. In June 2023, when airfares surged after Go First suspended operations, the Civil Aviation Ministry ruled out capping ticket prices, saying market intervention could distort competition and erode the benefits of deregulation. The ministry also pointed to the fall in fares on some routes after it engaged with airlines and asked them to exercise restraint.

The difficulty is that competition does not guarantee stable prices at every moment. Airlines compete for passengers when seats are plentiful, often offering discounted fares to fill aircraft. As departure approaches, the remaining seats become scarcer and the fare structure changes. A traveller booking well in advance may pay a fraction of what someone travelling on the same flight pays at short notice.

This system may not always be inherently abusive. Airlines need to recover the cost of operating a flight from passengers paying different prices. But the model becomes politically difficult to defend when a passenger facing a family emergency or travelling during a major festival has no realistic alternative to paying several times the normal fare.

A permanent cap would treat these situations as a pricing problem that can be solved administratively. In reality, part of the problem is a shortage of immediately available seats. Regulation can limit what airlines charge, but it cannot manufacture additional aircraft or flights.

Airline failures make fare controls more complicated

The history of private aviation in India shows why the debate cannot be reduced to keeping ticket prices low. Kingfisher Airlines stopped flying in 2012, Jet Airways suspended operations in 2019 and Go First halted flights in May 2023. Each of these collapses, besides several others, had its own causes, including financial mismanagement, intense competition, mounting liabilities and operational constraints. However, all showed how difficult it is to sustain an airline in a market where customers are highly price-sensitive and costs are substantial.

Also Read: 'Govt has no plans to regulate airfares'

Go First's collapse in May 2023 highlighted the immediate consequences of lost capacity. The airline had been operating around 170 to 180 flights daily. Its suspension removed seats from the market, leaving competitors unable to replace all the capacity immediately. Fares on some leisure routes rose sharply.

The episode exposed an important difference between airline profitability and passenger affordability. An airline can be struggling financially even when its tickets appear expensive to customers. Aircraft leases, maintenance, crew salaries, airport charges and fuel costs continue to accrue whether every seat sells or not. Airlines also have to account for seasonal fluctuations, when aircraft may be full on one leg of a journey but less occupied on the return.

The business is particularly vulnerable when carriers expand aggressively or operate with limited financial reserves. A weak airline may keep fares low to attract passengers but fail to generate enough cash to service its debts and meet operating expenses. Conversely, a reduction in the number of active airlines can leave passengers with fewer choices and greater exposure to high prices.

The lesson is not that airlines should be allowed to charge whatever they want. It is that artificially suppressing fares without addressing the conditions affecting supply could aggravate the very problem the government wants to solve. If a route becomes commercially unviable, a fare ceiling may make airlines less willing to add capacity, especially where passenger demand is seasonal or unpredictable.

Different pulls and pressures on airlines

The present fare surge also reflects costs and constraints that cannot be addressed through pricing rules alone. Aviation turbine fuel (ATF) is a major component of airline expenditure. The Iran war has kept fuel costs consistently high. ATF accounts for around 40% to 43% of airline operating expenses, making fuel-price movements an important factor in ticket pricing.

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IndiGo, Air India and Akasa Air had raised fuel surcharges amid rising fuel costs. The sharp festive-season increases came amid higher fuel expenses and fewer flight options. Fuel costs affect the price at which an airline can profitably operate, while capacity constraints affect how many seats are available to absorb a surge in demand. Even if fuel prices stabilise, fares can remain high on a route where flights are full and additional services cannot be introduced quickly.

India's airport expansion has transformed regional connectivity, but new terminals and runways do not automatically translate into abundant airline capacity. Airlines still need aircraft, trained crews, maintenance support and commercially viable schedules. Aircraft shortages and engine-related groundings can constrain operations even when airport infrastructure is available.

Uneven demand is another big factor. Festival travel, school holidays and major events can concentrate passengers on particular dates and routes. Airlines cannot always deploy additional aircraft for a short period without affecting schedules elsewhere. A price cap might make the available seats cheaper, but it would not ensure that every passenger who wants to travel can find one.

That is why the 68% increase on Delhi-Hyderabad cannot be interpreted simply as a 68% increase in the cost of providing the service. The fare reflects a combination of demand, available capacity, booking patterns and operating costs. The challenge for regulators is to distinguish legitimate price variation from extreme pricing that exploits passengers who have little choice.

The new rules will follow a middle path

The Centre has no plans to regulate ordinary ticket pricing under the new rules being framed under the Bharatiya Vayuyan Adhiniyam, 2024, as per an ET report based on information from sources.

The government would, however, have the power to impose fare limits during extraordinary circumstances such as natural calamities or disruptions.

The proposed framework would require airlines to submit their fare structures to the Directorate General of Civil Aviation (DGCA) a month in advance and display them on their websites. As per the ET report, the DGCA would monitor fares to ensure airlines did not charge above the highest fare bucket submitted to the regulator.

If implemented as reported, this would give the regulator greater visibility into airline pricing while retaining the industry's ability to adjust fares within its declared structure. It would also make it easier to identify cases where the actual fare exceeds the submitted maximum. However, the final rules will also need to include provisions on how frequently fare structures can be revised, how different booking channels will be monitored and what penalties will apply to violations.

How the government defines an extraordinary situation will be an important factor. A natural calamity or an emergency that leaves passengers with no practical alternative to flying presents a stronger case for temporary intervention than a predictable surge during a festival. If every period of high demand triggers a cap, the exception could gradually become routine price control.

India's airfare problem calls for more precise intervention rather than a wholesale return to regulated prices. The government can scrutinise fare structures, demand explanations for exceptional increases and establish temporary safeguards when disruptions cause severe hardship. But lasting relief will also depend on stronger airline finances, more reliable aircraft availability and sufficient capacity on routes where demand is growing.

The new rules may help prevent the most extreme pricing episodes but cannot by themselves resolve the structural imbalance between volatile demand and constrained supply.