DGCA norms soon to cap paid-for seats in flights

The Directorate General of Civil Aviation is looking at framing regulations to cap the number of preferential seats airlines can offer in a flight.

The move comes after the civil aviation ministry decided to allow Indian carriers to charge passengers for add-on services like their foreign counterparts.

"Customers should have the choice to opt in for preferential seats.

"Besides, the middle seat in an aircraft cannot be termed a preferential one.

"There would be a cap on the number of preferential seats an airline can offer in a flight," a senior DGCA official said, requesting anonymity.

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"We are looking at framing some regulations which would be in line with international norms."

Industry estimates indicate while internationally, around 10 per cent of capacity is earmarked preferential in airlines, in India, if window and aisle seats are put up for pre-booking in lieu of a specified fee, two-thirds of in-flight capacity can yield ancillary revenues.

In a move which is expected to improve the operating costs of airlines, the ministry had allowed Indian carriers to unbundle certain services and charge these separately.

The airlines would have to submit the details of various charges for such services. DGCA will monitor that the fees are not altered unlike air fares for flights.

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The decision is expected to open up additional revenue streams for airlines -- from check-in baggage, use of lounges by economy class passengers for a fee, carriage of sports or musical equipment, etc.

While airlines have welcomed the dismantling of regulatory control, opinion has been divided on whether the decision would result in spiralling upwards air travel costs.

Some experts have held that since 80-85 per cent of an airline's operational expenses are fixed in terms of fuel costs, airport charges, salaries payable to crew members and payments made to aircraft leasing companies, there is little room left for airlines to lower base fare despite the ministry's decision to unbundle services.

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"Base fares are likely to reduce with the unbundling of services, but not substantially since a significant portion of airlines' costs are of a fixed nature.

Airlines would recoup the reduction in base fare through increase in ancillary revenues.

Lower base fares may attract some traffic from road and rail to air.

The bigger takeaway is the fact that the ministry is stepping away from intrusive fare control and letting market forces play their part," says Amber Dubey, partner and head-aviation at global consultancy KPMG.

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Civil aviation minister Ajit Singh, however, has maintained that permitting airlines to unbundle services would help airlines lower base fare for the price-sensitive traveller and at the same time offer add-on services to more discerning customers at a cost.

Neil Mills, chief executive officer, SpiceJet, said: "It's a welcome step, but we have not taken any decision yet. In an ideal environment, base fares should come down in the industry, but it would take some time."

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Interestingly, the announcement has come days after Malaysian low-cost carrier Air Asia applied for commencing air services in the country.

Air Asia relies heavily on ancillary revenues from check-in baggage, preferential seats, in-flight entertainment and meals, while keeping its base fare low. Indian airlines had earlier started pre-booking seats for a charge about three years back, but had stopped upon a directive from DGCA in early 2012.

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The decision to allow airlines to unbundle services was taken in line with a report formulated by Nathan Economic Consultants -- 'Economic Regulations to Airlines: Ticket Pricing in India'.

The report had batted for unbundling of services "since it has become a necessary aspect of exercising more control over operational costs and running a successful airline".

According to travel technological solutions firm Amadeus, airlines globally are said to have generated around $36.1 billion in ancillary revenues in 2012.

GIVING A BOOST?

• Civil aviation ministry had allowed Indian airlines to unbundle certain services and charge them separately
• The move is expected to improve airlines' operating costs. To open additional revenue streams for airlines -- from check-in baggage, use of lounges by economy class passengers for a fee, carriage of sports or musical equipment
• Airlines would have to give details of various charges for unbundled services
• DGCA would monitor such that the fees are not altered, unlike airfares