The clarification has come in the context of demands in certain quarters that airlines will be the next to see curbs on surge pricing after such limits were placed on taxi services such as Uber.
Last week, the Karnataka High Court had dismissed a petition by Uber that had argued that state governments did not have the right to control surge pricing by cab companies.
Like airlines, Uber and Ola have different fares depending on the demand. When demand is higher, so are the fares.
States like Karnataka and Maharashtra have placed curbs on the maximum fares that taxis can charge. Karntaka, for example, has imposed a limit of Rs 19.5 per km for an air-conditioned cab and Rs 14.5 per km for non-ac cabs.
There was speculation that since airlines also work on the same model, they too would see limits placed on the airfares.
A ticket between Bangalore to Delhi can vary from around Rs 2,500 in times of low demand to as much as Rs 40,000 in times of heavy demand.
Such flexible pricing helps the cab and airline companies to spur demand when uptake is low and recoup their losses when demand is high.
The government said it had no plans to restrict the demand-based model.
“Air fares are not regulated by the Government as they are determined by the interplay of market forces. Airlines remain compliant to the regulatory provisions of Sub-Rule 2 of Rule 135 as long as the fare charged by them does not exceed the fare established and displayed on their website,” the civil aviation ministry said.
Another rule, sub rule 1 of Rule 135 of Aircraft Rules 1937, says that airfares must be based on “all relevant factors, including the cost of operation, characteristics of service, reasonable profit and the generally prevailing tariff.
No case of violation of these fare-related rules have been reported to the government in recent years, it added.
The ministry also said the surge model was accepted globally. “The lower fare in the fare bucket is available for advance booking much earlier. As time lapses and date of journey approaches closer, the fare in higher side of fare bucket is made available as per the respective airline policy,” it said.