With aviation turbine fuel prices falling yet again on Monday - the seventh time in the past three months - and now hovering at December 2005 rates, the government has strongly indicated to airlines that fares must be lowered.

In the latest cut, oil companies reduced prices by a whopping 11%. In Delhi, for instance, ATF costs Rs 32,691 a kilolitre - cheaper by 54% from the August high.

Aviation secretary M Madhavan Nambiar met airline heads on Monday and told them to take steps to stimulate the falling demand and get people back into planes. The message was clear - go back to competitive fares.

Private players like Kingfisher have, in the past, linked cutting fares to demands for ATF to be termed a declared good so that a flat 4% sales tax is levied on it across the country. But on Monday, airlines were clearly told that enough relief had come in the form of hugely cheaper ATF, with prices dipping to a three-year low.

However, the only reaction from private airlines so far has been to reduce fuel surcharge by Rs 400 last month - forced by Air India doing so - besides dropping the congestion charge of Rs 150. Thanks to a combination of high fares, the overall slowdown and increased threat perception at airports, air travel has nosedived. November alone saw a 21.3% fall in domestic air traffic compared to the same period last year.

When contacted, Nambiar said: "Fares are the commercial decision of airlines but certainly something needs to be done to stimulate demand and this was conveyed to the carriers. We also discussed the security situation to fog preparedness."

Government sources said despite private airlines citing mounting losses and dues, "fares need to be competitive once again to revive the industry". "Last month also the aviation ministry made Air India (domestic) lower its fuel surcharge by Rs 400. Private players were forced to follow. This time also we may follow a similar route," said sources. The ministry top brass is likely to meet AI chief Raghu Menon in the coming days to decide on a fare cut.

Full service airlines - AI, Jet and Kingfisher - said they were as yet evaluating the impact of the latest ATF price cut. "We've just cut fuel surcharge by Rs 400. We'll take a call now on what to do next," said a Jet spokesperson. AI, which does not charge the congestion charge of Rs 150 like the low-cost carriers, said their recent fuel surcharge cut had already factored in the falling price trends of December. LCCs are reportedly working on re-introducing really low advance fares to stimulate demand.