SpiceJet and IndiGo stocks take off as a 2-hour flight could now cost up to ₹13,000

• The India government removed the COVID cap on airfares allowing a rise between 10% and 30%, depending on the duration.
• The investors cheered the fare cap revision as IndiGo and SpiceJet's stocks jumped nearly 3% and 5%, respectively, on Friday (February 12).
• The fuel prices that account for nearly 70% of the airlines' cost crossed the $60 per barrel mark earlier this week, adding to the airlines' operator's woes.

In a big relief to bleeding airlines, the government on Thursday eased caps on airfares. The Indian air regulator extended the curbs on setting fares till March 31 but said the airlines could charge as much as 30% more of the earlier limit.

The rise in fares will depend on the distance covered and duration of the flight. For example, any flight between 90 minutes to 2 hours could cost as much as ₹13,000 compared to a maximum of ₹10,000 earlier.

Airlines, and their shareholders, like this move. The likes of IndiGo and SpiceJet saw their shares spike by at least 3% on Friday (Feb 12). Low fares and high fuel cost had choked and bled these airlines in the past 4 quarters.

After the new revision, the airfare will now rise between 10% and 30%, the passenger fares, depending on the flight duration, the civil aviation ministry said in an order.

Here’s the new airfare breakup

While this may not fully compensate for the increased fuel costs, which have nearly doubled since the pandemic broke, it is more likely to improve airlines' financials walloped by the pandemic.

The fuel prices that account for nearly 70% of the airlines' cost crossed the $60 per barrel mark earlier this week, adding to the airlines' operator's woes.

The Indian airlines have been demanding that the restrictions on setting fares be lifted, for a long time.

"Fares are lower than they should be at this point and again it is because we are not getting enough of our booking period," Ronojoy Dutta, CEO of IndiGo, said during an investor call, adding that it was hard for the airline to make money with rising cost and low occupancy.

The curbs will be lifted soon

Emphasising that capping of airfares was an "extraordinary measure", Union Minister Hardeep Singh Puri said the price bands are expected to be done away with once flight services reach pre-COVID-19 levels.

Puri said the floor and the ceiling price on airfares were extraordinary measures that were necessitated by an extraordinary situation. It was designed to ensure that airlines, in a situation of limited availability, did not charge an exorbitant price, he said.

The order for capping of fare is valid up to March 31, 2021. The domestic scheduled operations at present have been opened up to 80 per cent of the pre-covid level.

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