India withdraws domestic airfare caps in relief to airlines

By Abhijith Ganapavaram and Rajveer Pardesi

NEW DELHI, March 21 (Reuters) - India will revoke temporary fare caps it had imposed on domestic air tickets in December, according to a government order reviewed by Reuters, a move to ease the financial burden on airlines facing higher costs from disruptions due to the Iran war.

The caps, set to be lifted from Monday, were introduced in December due to mass flight cancellations by market leader IndiGo INGL.NS that led to a jump in airfares at other carriers.

"The prevailing situation has since stabilised, with restoration of capacity and normalisation of operations across the sector," the Indian civil aviation ministry said in its order.

The order, which was dated Friday and reviewed by Reuters on Saturday, has not been made public. A spokesperson for the ministry did not respond to a request for comment.

Indian airlines had urged the government to lift the price caps, arguing they were causing "huge" revenue losses amid higher operational costs in part because of a jump in jet fuel prices due to ​the war, Reuters reported on Friday.

Though airlines have not revealed the extent of losses suffered, HSBC analysts have said a $1 per barrel change in fuel prices could impact IndiGo's full-year fuel bill by about 3 billion rupees.

Under the caps, a one-way fare for a journey up to 500 kilometers cannot be more than 7,500 rupees ($80.07). Journeys between 1,000 and 1,500 km - such as the New Delhi-Mumbai route - were capped at 15,000 rupees.

The government's order instructs airlines to ensure fares remain "reasonable, transparent and commensurate with market conditions, and that passenger interests are not adversely impacted."

($1 = 93.6720 Indian rupees)