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No Govt Proposal to Regulate Economy Class Air Fares: Mahesh Sharma


December 1, 2015.

The Civil Aviation Ministry might regulate air fares to prevent predatory pricing. Some parliamentarians have asked the Civil Aviation Ministry to look into the issues of steep hikes in air fares during festival seasons. 

In a report tabled in Parliament, the Department-Related Parliamentary Standing Committee on Transport, Tourism and Culture had suggested a cap on maximum air fares.

The report pertained to action taken by the government on observations/recommendations of the panel on the Ministry’s Demands for Grants (2015-16).

December 3, 2015.

In a written reply to the Lok Sabha, the Minister of State for Civil Aviation Mahesh Sharma said that the air fares are not controlled by the government. There is no proposal before the government to regulate economy class air fares for domestic routes. According to him, airlines are free to fix the ticket rates after they take into account various factors including cost of operation and characteristics of service.

His remarks came against the backdrop of concerns expressed in various quarters about steep fluctuations in air ticket prices. A parliamentary panel had also suggested to put a cap on maximum air fares on domestic routes.

Minister of State for Civil Aviation Mahesh Sharma
A Tariff Monitoring Unit has been set up at the Directorate General of Civil Aviation (DGCA) to monitor air fares on certain routes on a random basis. This is to ensure airlines do not charge fares outside the range declared by them. “The analysis on a random basis has shown that the air fares remained well within the fare bucket uploaded by the airlines on respective websites,” Sharma said.

Effects of Dynamic Pricing.

Dynamic pricing, also known as yield management or revenue management, is a set of pricing strategies aimed only at increasing profits. In case of an airline ticket, the techniques become extremely advantageous because of its special inherent properties that co-exist. 
  • One, the ticket expires at a point in time
  • Two, capacity is fixed well in advance 

The pricing systems used by major airlines are unusually opaque to the consumer, which is not surprising. According to one estimate, American Airlines change half a million prices per day.

Eager crowds at airport

In dynamic pricing, the price of a ticket fluctuates frequently based on a number of complicated algorithms. Airline might regularly change the price of an item based on 

  • consumer demand, 
  • price offerings by a competitor,  
  • the time of the day, 
  • day of the week, or
  • season of the year 

Time of Purchase, thus, being the most significant factor.

Some strategies offer customers different prices based on the time when they buy. The price of economy-class seats on a particular flight may fluctuate over time. For example, the airline may try to fill seats by lowering the price as the day of the flight draws closer.

Changing Conditions

Using dynamic pricing strategies airlines boost their profits more under certain market conditions; it works best when there is a lot of uncertainty in the market, for example when the ticket has a very short life span. Airlines can maximize profits by lowering prices as sales fall, then raising prices again as demand increases.

Airline pricing are not transparent. It is common to find one-way fares to exceed round-trip prices. There are always some differences in prices between refundable and non-refundable tickets. 

Happy fliers, Sad fliers.

Obviously, in such a scenario,  there will be a flier who buys the cheapest ticket ; he thanks dynamic pricing. There will also be a flier who misses the window and pays 2-10 times more.

How to Take Advantage of Dynamic Pricing

But the consumers can actually avoid falling into dynamic pricing pitfalls. The best recourse that consumers can have is a well researched 2-fold strategy. First, he must plan his travel well in advance. Second, he must do his research and compare prices, and familiarize himself with the price trends before he buys. 

The bottom line is that airlines also need fliers to stay in business, and ever-changing dynamic pricing strategies can actually benefit both parties. The average dynamic pricing algorithm depends on customer demand and behavior very much. It also makes sense to buy an airline ticket ahead of the others. And this requires scrupulous planning. Invariably, in case of Indian travelers the well thought plans go awry as the travel date draws closer. It is precisely this probable event on which the very economies of the Airlines are based. Every flight sees a number of “no shows”. This is generally due to unforeseen conditions the customer might have faced. Urgent work at the last minute, accident, injury or even death can be the possibilities. The longer the period of purchase, the more probable is such a situation. The cancelled ticket becomes available for resale apart from accruals of cancellation charges. Amounts of non-refundable tickets are happily forfeited. The concerned airline is the ultimate gainer because all such charges add to its sales revenue. 

The airline industry has been using dynamic pricing schemes for years. Any seasoned flier can tell you that getting the lowest airfare often comes down to one factor: buying tickets on the correct day of the week, at the right time of day, and the correct number of days before the scheduled departure date. Did you know the best time to buy airfare is six weeks in advance?

Fliers, have you been victimized by dynamic pricing, or have you become a master at scoring big discounts ? We will like to hear from you.

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