Civil Aviation Authority

"We will look into the interest of the aam admi and there will be no exorbitant fares," civil aviation minister Praful Patel said.

The airlines' proposal, made to sector regulator Directorate-General of Civil Aviation (DGCA), relates to peak fares — which apply only if tickets are bought on the day of travel or the day before.

"The DGCA is looking into the matter. If a proposal has come, it doesn't necessarily mean it will be approved," Patel said. He added that the DGCA had issued notices to the airlines over the exorbitant upper-band fares they had proposed.

Under the airlines' proposal, the peak fare ranges between Rs 10,500 and Rs 40,000 over four distance bands: up to 750km; 750-1,000km; 1,000-1,400km and above 1,400 km.

The peak-fare band proposed for the 750-1,000km slab ranges between Rs 14,550 and Rs 19,500; while it is Rs 17,000 to Rs 25,000 for the next slab.

DGCA officials said the proposed fares were likely to be dismissed out of hand and airlines asked to "come to their senses".

If the airlines persisted in trying to raise fares, civil aviation officials said, "relevant authorities could well initiate probes and action against what we may view as cartel-like action".

The officials warned that licences could be given to new airlines to operate on Metro routes to break any "cartel-like situation". Allowing new players in telecom has led to lowering of tariffs.

Analysts said the proposed rates were too high and would make business unviable for most airlines, especially the low-cost ones.

"On major routes, high peak fares would result in traffic moving to the railways," said Robin Pathak, former Indian Airlines director and aviation sector analyst.

Airlines pointed out that the proposed price bands were only for peak fares. "The average price is much lower if the tickets are bought in advance," an airline official said.

For instance, if you now book a ticket for December 23 on a New Delhi-Calcutta flight, the price can be as low as Rs 4,030 on a low-cost airline. A ticket for tomorrow's flight could, however, cost around Rs 17,000.

The country's domestic airlines — including IndiGo Airlines SpiceJet, Jet Airways Konnect, JetLite, GoAir and Air India — have submitted the peak price bands in response to a DGCA directive last month to provide fare information on the first of each month.

The DGCA had issued its circular after fares on some routes, like Delhi-Mumbai, shot up by 300 per cent in November because of a demand-supply mismatch. The circular asked each airline to "furnish a copy of the route-wise tariff across its network in various fare categories... on the first day of every calendar month".

Pradeep Baijal, head of the Federation of Indian Airlines, said: "FIA does not discuss fares.... Fares are decided by individual airlines." Jet Airways refused comment on the proposed fare hikes while other airlines sought time to react.

Aviation sector analyst Sudipto Sen said: "Airlines have been ratcheting up fares in response to increasing demands.... However, we estimate that once Air India, Indigo, SpiceJet and Jet manage to get deliveries of ordered planes, there could be over-capacity on many routes, sharply bringing down the fares."

Government of India has warned airlines against any further hike in airfare. The airlines in India have come out with the proposal to increase the prices after they were asked to submit their planned price bands. As per the proposal sent to the aviation ministry and the DGCA (Directorate General of Civil Aviation), the airfares might see a hike up to 300% from the current level.

According to the new proposal by the airlines, the distance upto 750 KM could cost upto Rs. 18,500, Rs. 19,500 for the distance between 750 KM – 1000 KM and for above 14000 KM the fares could go up to Rs. 40,000. This makes it cheaper to fly to London or Paris from Delhi than to fly to Mumbai. The main reason which has been attributed to this step is that airlines are taking advantage of the massive demand supply crunch in the aviation sector.

Before the proposal submission in December 2010, the fares of some of the airlines went upto 25% during Diwali season in November 2010 and government wants to make sure that this does not happen during the Christmas season again. On the other hand airlines contend that there was a huge drop in flight and seat availability during the year 2008 and 2009. The domestic airlines were flying abroad at the cost of cutting their number of domestic flights because of the shortages of aircrafts.

This happened as during the recession times, the airlines could not borrow the aircrafts. The Aviation Turbine Fuel (ATF) prices also increased during the recession period which worsened the profit figures of the airlines. The key players in the industry such as Air India, Kingfisher Airlines and Jet Airways suffered huge losses during the FY 2009-10. Air India reported a loss of Rs 5,551 crore in 2009-10, whereas Kingfisher and Jet has registered losses of Rs.419 crore and Rs.406.7 crore respectively for the second quarter of the 2009-2010.

Now when the recession period is over, airlines are covering up the losses incurred by increasing the airfares. The way to cover the losses differs from airline to airline. Some airlines are in real hurry to cover up the losses by increasing the prices rapidly and are charging more that what the other carriers are charging. While other airlines charge high fares for last minute bookings.