So now going forward consumers would have to be prepared to pay marginally higher for tickets.
Jitendra Bhargava, Former ED, Air India when questioned on how he read this he said, "Fundamentally, this is a move that must be welcomed. It takes India on to the practices that are followed globally."
Also read: Airlines can charge preferred seats, check-in bags: Govt
However, he adds, for there to be any significant change in Indian carrier's revenues government will have to look at more fundamental systemic issues that can put Indian carriers on a stronger financial model, especially issues of Aviation Turbine Fuel (ATF), airport charges.
Although he agrees that this current move would increase the revenues for the airlines marginally and help those customers who can afford to pay extra for these services.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: How exactly are you reading this move that has been announced by the government? What will this mean? Should consumers expect air fares to go up?
A: For passengers who can afford to pay an extra bit for getting a preferred seat with more leg space and for food, use of lounge etc. it is good news.
But for a normal passenger who travels with checked- in-baggage that would mean that he is going to pay in additional sum to an airline. On the other hand, it may discourage people from going with check-in-baggage but will have preferred to go with hand baggage because there is there is a cost involved for an airline for handling of a check-in-baggage.
This decision of the government or the ministry has come in at a time when AirAsia is coming in. AirAsia has been charging for all these services. So one can always wonder as to why did we not move in to this model, six months or one year ago when AirAsia was not being considered or was not planning to come into Indian market.
The other aspect is that one could say that these are tinkering, which will have marginal kind of revenue growth for the airlines and financial burden for the passengers.
However, the ministry ought to be looking at are bigger issues; fundamental systemic issues that can put Indian carriers on a stronger financial model. Issues of Aviation Turbine Fuel (ATF), airport charges are handled whereas these unbundling service issues I would categorise as small kind of feeders or a feed being given to the airlines, which isn't going to take them very far.
Q: This is a very small step that has been undertaken by the civil aviation ministry. They have opened up the sector in terms of foreign direct investment (FDI) but moves like this - allowing increasing ancillary revenue are just small steps. Do you think that this is going to enable airlines to reach that 20 percent global level which has been set by players because we are talking about AirAsia, Etihad and Jet now, do you think they will be able to compete, is it still a level playing field as far as the domestic players are concerned?
A: I don't think so. It is still a far, distant dream I would say for Indian carriers to scale 20 percent as far as ancillary revenues are concerned because for example sale of products on flights, there are various kind of franchise's that are given out. Those kinds of things haven't been attempted by most of the Indian carriers.
Lounge, tickets, preferred seating; food etc on board will not amount to a significant sum for the airline. One way of looking at it is that it is a welcome revenue for the airline. But if the question is can it help airlines come out of a scenario, for example when AirAsia comes in you get into a regime of low fairs once again, which will severely impact the finance of the airlines which have seen an upward movement thanks to the demise of Kingfisher. The fundamentals of the airline industry have to be looked at by the government.
I would only describe this current move as tinkering and nothing more than that. It would certainly help people who can afford for example for more leg space at the moment you request an airline or you go to the airport sufficiently in advance. But with this move one would be able to pay and get a seat with leg space or a window seat for that matter or check-in baggage, as many bags I want to check-in. So, those kinds of things are coming in,
Fundamentally, I would say this is a move that must be welcomed. It takes India on to the practices that are followed globally. However for any significant change in Indian carrier's revenues to come in, it will come in through major significant issues, which are unfortunately not receiving the attention of the government.
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