For the past few days there is a tussle going on between the aviation ministry and the airlines on the fares being charged by the latter in general and the spot fares in particular.
First let me clarify that the high airlines fares have been pinching me just as much they bother others, government included. I have had to postpone or dilly-dally on many a trip that I wanted to make. However, I would still like to defend the right of an airline to charge whatever they think the seat is worth.
The elementary economic theory tells us that prices are driven by demand and people pay what they think the service is worth. The same theory also tells us that on the supply side the seller would like to price the product in such a way that all the goods are sold at the maximum price that they can get for profit maximization. And hence the price demand equilibrium.
Airlines are in the business of making money by transporting people from one place to another by airplanes. Since they have invested capital, they alone should have the right to determine the price at which they would like to sell the seat. If they are able to find enough buyers to buy the service at the price they charge then it means that the consumer finds the service worth the money. This will help them make higher profit. On the other hand if they are not able to find buyers for their seats at the price they charge then they will either lower the tariff on their own or fly empty seats and thus lower their profits. The basic assumption that is being made here is that the airline owners are sane and intelligent people and they will work in the best interest of their business.
The government is suggesting that the airlines should declare how many seats are booked when they ask for a particular fare. My question is how it matters whether only 5 seats are booked or only 5 are remaining. The airline would like to make as much profit as possible and they should be the only ones to decide at what seat occupancy they would like to fly. That is not anybody else’s business.
Another thing that worries me is the fact that this concern of the government is seen only during festival time when the demand becomes very high. This indicates that the concern is more political than economical. What it means is that the government will allow the airlines to “fleece” the business traveller but not the holiday reveler.
High prices for air fare indicate high demand for air travel. The correct way to lower the prices would be to increase capacity and not dictate that prices be lowered. Unfortunately no work on the ground is evident in that direction.
The capacity expansion can be a permanent affair or a temporary one. While one would like to believe that most airlines would over a period of time increase their capacities to take care of the growing demand, it is not prudent to increase the bench capacity just to take care of the seasonal surge. Some of the ways to tackle this holiday rush could be:
- Hire additional aircraft and crew for that period alone. How? Let me think about it and come back on that.
- Reroute flights – reduce frequency on some sectors and increase the frequency in the high demand sectors during the rush months.
- Increase frequency in general – say, fly 4 times on a sector instead of 3 times using the same resources.
- Fly by night. Who says that you can’t offer a flight at 2 am? If people can catch trains at that hour, why not a flight?
- Share capacities among each other – cartels for customer service as against prices.
I would be happy to get more ideas to cut air fares without having to dictate the airlines. Got any ideas? Do contribute. It may help you reduce the airfare the next time you travel!
