Let it fly: With normalcy back, there’s no case for regulating airline tariffs through price bands

Context: The covid time regulations are still applicable to the aviation industry. There is a need to roll back them.

India’s aviation industry faced a difficult time during covid times. Therefore, the government extended support to the aviation industry in the form of relaxation in the price band for air tickets and reduced GST on domestic maintenance and repair from 18% to 5%.

However, now the government must deregulate the tariffs in the aviation industry

Why the government must deregulate the aviation industry tariffs?

The situation of domestic aviation is back on track. However, the price band is still applicable for 15 days a month. Government must refrain from re-regulating the industry.

First, it is in contravention to the March 1994 decision to deregulate tariff fixation in the aviation industry. The decision liberalized the sector.

Second, the tariff regulations also lead to rent-seeking behavior.

Third, the Input price of aviation is increasing. Turbine fuel, which accounts for 40% of operating costs, is increasing. Thus, airlines should be free to price tickets to reflect it.

Fourth, competition is increasing in the domestic aviation industry. If some firms want to use pricing as a tool of competition, the floor price, set by the government, should not prevent it.

Source: This post is created based on the article “Let it fly: The case of regulating airline tariffs through price bands” published in The Times of India on 2^nd June 2022.