As the aviation industry gears up for the upcoming 2025 Union Budget, all eyes are on the government to address the growing concerns surrounding rising airfares and offer a roadmap to strengthen the sector’s infrastructure. With India’s aviation industry poised for rapid growth, the upcoming budget presents a unique opportunity to balance affordability for passengers while ensuring sustainability and expansion for airlines.

Key stakeholders, including airlines, travelers, and policymakers, anticipate critical announcements that could shape the future of air travel. A central question on everyone’s mind is: how will this budget impact airfares?

Industry Challenges and Priorities

The aviation industry faces a unique set of challenges in 2025. Rising fuel costs, increased regulatory requirements for sustainability, and the lingering effects of global economic uncertainty have created a perfect storm. To address these, industry leaders are lobbying for measures that balance fiscal responsibility with the need for growth and innovation.

Sustainability and Green Initiatives

Environmental concerns are expected to play a pivotal role in this year’s budget. Governments worldwide are under pressure to meet ambitious net-zero targets, and the aviation sector is a significant contributor to global emissions. Funding for sustainable aviation fuel (SAF), investment in electric and hydrogen-powered aircraft, and incentives for carbon-offset programs are likely to feature prominently. While these measures are critical for the planet, they may also lead to short-term increases in operational costs, potentially affecting airfares.

Infrastructure Development

Investment in aviation infrastructure is another anticipated highlight. Modernizing airports, improving air traffic management systems, and expanding regional connectivity are crucial for meeting the growing demand for air travel. These enhancements could improve operational efficiency and lower costs in the long run, but the initial capital expenditure might be passed on to consumers through higher ticket prices.

Who regulates airfare in India?

Time and again the government has informed that airfares in India are governed under the Competition Act, 2002, with anti-competitive practices monitored by the Competition Commission of India (CCI). Minister of State for Civil Aviation Murlidhar Mohol explained that airfares are driven by market factors such as demand, supply, seasonality, and operational costs. While the government avoids direct regulation to maintain market competitiveness, airlines are advised to keep fares reasonable, particularly during peak seasons. 

A Tariff Monitoring Unit (TMU) under the DGCA oversees compliance with Rule 135 of the Aircraft Rules, 1937, to curb predatory pricing. The Minister emphasized the government’s role in safeguarding passenger interests by ensuring market competitiveness and, in cases of excessive pricing, shifting capacity to high-demand sectors to stabilise fares.

Do higher airport charges mean costlier flights?

In November 2024, the International Air Transportation Association (IATA) raised concerns about a significant increase in airport charges, Airports Council International (ACI) emphasised that these charges are a vital revenue source for airports. ACI clarified that airport charges play a key role in supporting infrastructure development and are not directly responsible for increases in airfares.

What factors can lower or increase airfares? 

Travelers have been grappling with fluctuating airfares over the past few years, and the 2025 budget could introduce further variability.

Potential Drivers of Higher Airfares:

  • Fuel Costs: With global oil prices remaining volatile, fuel surcharges may continue to be a significant component of ticket pricing.
  • Environmental Levies: Governments could impose green taxes on airlines, which may be transferred to passengers.
  • Fleet availability: The availability of the operational fleet is a factor in determining airfare prices.
  • Labor Costs: The ongoing shortage of skilled aviation personnel has driven up wages, adding to operational expenses.

Factors That Could Lower Airfares:

  • Increased Competition: More entrants in the market, particularly low-cost carriers, could drive down prices.
  • Technological Advancements: Efficiency gains from modern aircraft and digital transformation might offset some cost pressures.
  • Subsidies and Incentives: Government support for regional routes or sustainable practices could help airlines maintain affordable pricing.