Covid-19 Pandemic: Govt Cuts Airline Capacity To 50% From June 1

The government has cut down capacity for airlines to operate from 80 per cent to 50 per cent from 1st June in order to safeguard viability of airlines with weak finances. Simultaneously it has increased the upper cap of airfare to go up by around 14 per cent due to the rise in fuel prices. “In view of sudden change in the number of Covid-19 cases, and decrease in number of passengers and reduced occupancy, the existing capacity cap of 80 per cent is reduced to 50 per cent,” the Ministry of Civil Aviation said in an order. The directive comes at a time when airlines suo moto have reduced capacity with some even flying less than 50 per cent capacity. Industry sources said that government’s direct intervention on fare and capacity have severely divided the airlines with SpiceJet, Go Air supporting the move whilst market leader Indigo and Tata Sons-owned Vistara opposing it. Airlines like SpiceJet and Go Air’s finances are at a precarious stage with both airlines on thin cash balance. Wadia group’s Go Air is planning to raise around Rs 3,600 crore to pay off debts and vendors. Aircraft lessors have sent notices to both Go Air and Spicejet for defaulting on lease payments. Sources said that in a meeting between secretary Pradeep Singh Kharola and airline executives, Spicejet and Go Air said that with flights being empty and fuel costs increasing it has become unviable to keep operations sustainable and the government should cut capacity. “With airlines operating only a fraction of their aircraft in the near term, there is a possibility that stronger airlines will outnumber weaker airlines and distort pricing to fill up their aircraft, potentially affecting the financial viability of carriers as well as that of the industry,” said an official. This situation needs to be prevented,” an executive who attended the meeting said. However, an executive of IndiGo said that such an intervention from the government on the commercial freedom of airlines hampers decision making and raises risk of diminishing the ethos of a free market. India deregulated the aviation industry in 1994, allowing market forces to determine the fares. However, a clause in the Aircraft Act, 1934, which governs aviation in India, allows the government to frame any rules, including those related to the regulation of tariffs. However, last year when the airlines were allowed to restart operations after a closure of two months, the government had started the practice of controlling capacity and airfare. “Airlines including IndiGo have already reduced capacity to less than 50 percent. Some have reduced more according to their own commercial wisdom.

But an intervention from the ministry on things like fare and capacity is uncalled for and sends a wrong signal,” he said.