Home Business IndiGo, SpiceJet Shares Fly Up To 7% As Govt Lifts Fare Cap On Domestic Flights

IndiGo, SpiceJet Shares Fly Up To 7% As Govt Lifts Fare Cap On Domestic Flights

IndiGo, SpiceJet Shares Fly Up To 7% As Govt Lifts Fare Cap On Domestic Flights


Aviation Stocks Today: Spicejet and IndiGo rose in Thursday’s intraday trade, a day after the civil aviation ministry said it will remove the cap on flight ticket prices which was imposed two years ago due to the coronavirus pandemic. The fare cap regime ends on August 31. The ministry had introduced both fare and capacity caps from May 25, 2020, when scheduled passenger traffic resumed after a strict lockdown.

The ministry reiterated that airlines and airports should ensure that the guidelines to contain the spread of COVID are strictly adhered to, and COVID appropriate behaviour is enforced strictly during travel.

The Civil Aviation Ministry stated in an order stated: ”After review of the current status of scheduled domestic operations viz-a-viz passenger demand for air travel…it has been decided to remove the fare bands notified from time to time regarding the airfares with effect from August 31, 2022”.

“The decision to remove air fare caps has been taken after careful analysis of daily demand and prices of air turbine fuel (ATF). Stabilisation has set in and we are certain that the sector is poised for growth in domestic traffic in the near future,” Aviation Minister Jyotiraditya Scindia said on Twitter.

ATF prices have been coming down during the last few weeks after jumping to record levels, primarily due to the Russia-Ukraine war that began on February 24.

Shares of IndiGo’s parent InterGlobe Aviation Ltd rose as much as 2.3 per cent to Rs 2084.6 while smaller SpiceJet Ltd jumped as much as 7 per cent to Rs 47.9. Additionally, Jet Airways stock jumped 1.2 per cent.

What Does This Mean For Airlines?

Once the fare cap goes away, airlines will be free to price their tickets starting September 1, 2022. Rules still mandate airlines to declare their fare and fare classes on their website and are not expected to go beyond the maximum fares allowed.

Mansi Lall- research associate, Prabhudas Lilladher Pvt Ltd, said: “We believe this to be a positive move from the government. This comes at a time when fuel prices are stabilizing (ATF price down 13 per cent from last month) and demand inching back to pre-COVID levels. We believe that the LCCs will continue to maintain attractive fares in lean travel periods, however, with the festive season coming up, higher fares could aid margins as fuel costs remain much above the pre-pandemic levels.”

Going forward, competition in the Indian aviation space is expected to heat up with the launch of Akasa Air and the revival of Jet Airways.

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