How will the Civil Aviation Ministry's removal of capacity restrictions for domestic flights impact the sector?

The aviation sector is coming back into action. With the Covid-19 worries tapering off, the Ministry of Civil Aviation (MoCA), in a notice, said that there will be no capacity restrictions for domestic flights from October 18.

Just last month, these restrictions were relaxed to allow airlines to fly at 85 per cent of their pre-Covid-19 schedule. In June, the airlines were allowed to fly with just 50 per cent capacity, but over the past few months, these caps have been gradually eased.

The decision has come weeks after the revision in the upper and lower limits of the fare bands, and the reduction in their applicability from 30 days to 15 days.

The latest step will give the control back to the airlines to sweat their planes at the optimal level, especially during the ongoing festive and upcoming holiday season when demand tends to be higher than the usual months.

The inability to deploy their fleet has been one of the biggest reasons behind the losses of domestic carriers. Because a large amount of their planes were grounded, airlines were still paying for their leases, maintenance, etc., yet they could not earn revenues from them.

The decision to keep the fare restrictions in place while allowing full capacity is apt. How? The fare restrictions will ensure that the airlines will not be able to engage in fare war. Airlines like IndiGo has already expressed their dissatisfaction with fare bands as it believes that such caps restrict its ability to stimulate demand in markets.

“The removal of capacity caps is but one step towards letting market forces take their natural course. Airlines are currently only deploying 70 per cent of capacity against an 85 per cent cap so it remains to be seen how this move impacts the industry. The capacity is only one side of the equation. That capacity also requires demand, and the occupancy factors of 68-70 per cent (on an average) indicate that there is still a long way to go,” says Satyendra Pandey, Managing Partner at the aviation services firm AT-TV.

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