Allowing airlines to charge for check-in luggage will be a step towards building a competitive civil aviation sector.
In a recent turn of events, the civil aviation regulator, the Directorate General of Civil Aviation (DGCA) rejected the plea of some airlines to charge for check-in luggage. The DGCA prevents airlines from charging any fees for check-in baggage below a weight limit of 15 kgs.
Defending the restriction, the Minister of Sate (MoS) for Civil Aviation, Mahesh Sharma stated:
“Air travel in India is likely to see a growth as more middle class Indians are expected to take to air travel. And if they have to shell out even for one kg of check-in baggage, it will discourage them.”
This is precisely where the problem behind such a regulation lies.
The main focus of the government should be on building an environment for competitive transport providers so that the passengers have better options. Instead, by focusing on imposing such pricing restrictions the government is creating perverse incentives in two ways.
First, such a measure disincentives passengers from reducing their check-in luggage which consequently increases the operating and opportunity cost of flights. Heavier planes burn more fuel in order to compensate for the drag caused by the increased mass, which, in turn, raises the operating cost of each flight. To place this in context, jet fuel accounts for 40% – 50% of the total operating cost of Indian air carriers as Aviation Turbine Fuel for domestic flights is priced highest in India. It is therefore only economical for airlines to charge for any extra weight brought on board. Check-in luggage also increases the opportunity cost of air travel; the time lost in handling luggage while during boarding and departing increases the waiting time of fellow passengers, of the current flight, and all subsequent flights.
Second, it increases the ticket price for passengers with minimal amounts of luggage as the additional cost of check-in luggage is added to the base cost of the ticket. It is with this reasoning that airlines had proposed the idea of “zero bag fares” when approaching the DGCA. This would essentially be a discounted ticket given to passengers traveling without check-in luggage . But the DGCA dismissed this idea as well, thus creating a disconnect between the operating cost and the revenue sources of airlines.
In order to achieve the larger goal of encouraging efficient airline services, the government should allow airlines to compete amongst each other and let the market price prevail. An example of a step taken in this direction would be the provisions made by the Ministry of Civil Aviation in April, that allow domestic carriers to unbundle their services and charge separately for facilities such as preferred seats, on-board meals and the use of lounges. This step was taken to increase the ancillary revenue sources for airlines, which can be generated from means other than the ticket price.
As far as the “middle class Indians” are concerned, there are various factors which affect the demand other than the ticket price, such as the income of the household, the cost of other modes of transport, their preferences etc. Moreover, better quality and efficiency of service can be a good substitute for the low cost, inefficient and time-consuming services delivered by most airlines currently.
Devika Kher is a Research Associate at Takshashila Institution. Her twitter handle is @DevikaKher.
Image source: Katyveldhort, Pixabay