A matter of public interest: Are India’s dynamic airfares that go up and down fair to everyone?

This experience is not unusual, but it does capture the anxiety many Indian travellers face when confronted with sudden fare spikes.

In November 2025, activist S. Laxminarayanan filed a public interest litigation (PIL) in the Supreme Court challenging the dynamic pricing models used by domestic airlines.

Put simply, air carriers use dynamic pricing models to adjust fares in real-time based on fluctuations in demand. The petition argues that algorithmic pricing pushes fares beyond the reach of the average Indian, disproportionately affecting last-minute travellers with emergencies and during events such as the Maha Kumbh.

Understanding this case requires a closer look at how airline pricing has evolved. Until the 1970s, fares were regulated globally. The US began deregulation in 1978 and other countries followed. India deregulated airfares with the repeal of the Air Corporation Act in 1994. The recent Bharatiya Vayuyan Adhiniyam of 2024 empowers the government to undertake economic regulation of civil aviation, including tariffs—the basis of this petition.

Freed from fixed fare schedules, airlines adopted dynamic pricing—a model under which different customers can be charged different prices. Fares vary by time of day, with peak-hour flights costing more than off-peak ones. Ticket prices often rise during holiday seasons or on routes with strong seasonal demand. Of course, they also differ based on market segmentation—for example, business-class tickets cost a lot more than economy tickets.

Dynamic pricing offers airlines several advantages. It maximizes revenue by adjusting fares in accordance with the market’s balance of demand and supply, which helps improve seat occupancy by letting prices change quickly as conditions shift. It enables airlines to cater to fliers whose willingness-to-pay differs—from business travellers with somewhat firm schedules to budget-conscious passengers who tend to book early.

But the system also has its drawbacks. If prices rise too sharply, airlines risk losing bookings or triggering price wars. Dynamic pricing also depends on accurate demand forecasting, which can be thrown off by unexpected events such as pandemics or severe weather. Maintaining the data systems behind these algorithms requires significant investment.

From the consumer’s point of view, dynamic pricing is a source of both opportunity and frustration. Low‑demand periods bring cheaper fares and competition among airlines can keep prices in check. Yet the unpredictability of dynamic pricing, coupled with low transparency on how fares are set, can leave last-minute or emergency travellers facing prohibitively high prices.

From an economic perspective, this legal battle is over the ‘consumer surplus,’ which is the ‘bonus’ value passengers receive when they pay less for a flight than the maximum amount they were willing to spend. For instance, if the Bengaluru resident was prepared to pay ₹20,000 for an emergency flight but found a ticket for ₹15,000, then the ₹5,000 difference represents this surplus.

However, by raising fares in real-time to match a passenger’s willingness to pay, airlines can convert part of the consumer surplus into a producer surplus.

The latter is the difference between the minimum price a producer would accept and the fare price actually received. For instance, if an airline is willing to sell a ticket from Chennai to Bengaluru for ₹5,000 but strong demand lets it charge ₹20,000, the resulting producer surplus is ₹15,000.

The PIL contends that in a market with limited competitors, the conversion of a consumer surplus to a producer surplus can be skewed, thereby leaving fliers with diminishing economic value.

An alternative to dynamic airline prices is capped airfares—even during demand spikes. This provides travellers with stability and predictability by eliminating fare shocks and allows for a larger consumer surplus in cases of fliers ready to pay more. However, caps can impact airline revenues and make some routes less viable, prompting airlines to reduce capacity or services, which could offset some of the consumer benefits.

This debate gained fresh momentum last month when IndiGo faced an operational crisis that led to widespread delays and cancellations. Thousands of passengers were stranded and airports were overwhelmed.

To prevent opportunistic fare hikes, India’s ministry of civil aviation imposed temporary price caps on affected routes. Yet, around the same time, civil aviation minister K. Rammohan Naidu emphasized that deregulation remains central to the sector’s growth—a reminder of the delicate balance policymakers must strike.

The Supreme Court has yet to decide on the PIL, but recent events highlight the importance of the question raised: Where should the line between market efficiency and consumer protection lie? And can one rule apply to all situations? Perhaps not. This line may depend on specific circumstances—with a fine balance struck between market growth and passenger benefits.

These are the author’s personal views.

The author is managing economist, Bates White, Washington DC