The issue of two-tier airfare structure on the domestic sector has resurfaced after the Supreme Court issued a show cause order to the tourism ministry, acting on a writ filed by a tourism entrepreneur.

Tapendra Rawal, a tourist businessman from Kailali, had filed a petition in the Supreme Court on January 21 stating that the dollar fare was being implemented without a legal basis and that it was hindering Nepali tourism.

This has been a topic of discussion for long, with entrepreneurs persistently lobbying politicians and ministers to either allow or adjust the dollar fare system. To understand the controversy, it is essential to grasp the concept of the two-tier fare structure, one of which is commonly known as the “dollar fare” in the tourism and aviation industry.

What is the dollar fare, and why is it controversial?

The dollar fare refers to what foreigners have to pay, as compared to local travellers, for the same flight. For example, a mountain view flight costs $185 for a foreigner but Rs10,335 for a Nepali. Similarly, a tourist flying from Kathmandu to Bhairahawa pays $85, while a Nepali pays Rs5,000. An air ticket to Pokhara costs a tourist $100, whereas a Nepali pays Rs4,000. The controversy stems from the fact that no laws explicitly permit dual pricing in airlines.

When did it start, and why?

The dollar fare concept began in Nepal in the early 1990s. “This system was introduced mainly for foreign tourists when the then Royal Nepal Airlines Corporation (RNAC) started quoting prices in US dollars instead of Nepali rupees,” said Yajna Prasad Gautam, a former tourism secretary. “After Nepal adopted a liberal aviation policy, private airlines followed suit.”

The idea was stabilising aviation revenues by protecting them from low occupancy rates. Nepal Airlines and private carriers adopted the practice, which extended to mountain flights, trekking permits, expeditions, national park fees, and domestic flights.

There are also different entrance fees for national parks and UNESCO World Heritage Sites and varying fees for climbing and trekking permits for foreign tourists, SAARC nationals, and Nepalis. The government collects these charges.

For instance, the government charges $11,000 per person for foreigners climbing Everest via the south route during the spring season (March-May), whereas Nepali climbers pay Rs75,000.

According to Gautam, the two-tier fare structure was implemented based on purchasing power parity. “We cannot charge the same fare to a Nepali and a foreigner as foreigners’ incomes are multiple times the annual per capita income of Nepalis,” he said.

The International Monetary Fund reports that Nepal’s current per capita income is $1,490, while the per capita income of US citizens is $89,680.

“If a foreigner is charged Rs4,000 for a flight to Lukla instead of $180, airlines will go bankrupt, and the government will lose revenue. But the cost is negligible for foreigners,” Gautam added.

Why has this issue emerged now?

Airline officials claim that diplomatic missions and INGOs have been lobbying for uniform airfares. Insiders suggest that with the rise in expat Nepali population, many no longer want to pay in dollars. Although the government allows dual citizenship, Nepali-born individuals abroad below 16 are not eligible for citizenship and must pay in dollars. The number of these travellers in Nepal is a few thousands, who usually haggle for lower prices or produce fake identity cards to pay in Nepali currencies.

Tourism ministry officials and experts argue that when Nepal is transitioning from a least developed country, removing the two-tier fare structure could create unnecessary hassles. Nepal’s import-driven economy relies heavily on remittance and tourism while other sectors struggle.

Nepal earned a record Rs82.32 billion from tourism in the last fiscal year.

“Some airlines have expanded using foreign concessional loans, while others rely on Nepal’s banking system with its high interest rates. The dollar fare model helps sustain operations,” said Rajendra Bajgain, a lawmaker.

“More than 10 million passengers [domestic and international] travel through Nepal’s airspace annually. Adjusting fare structures could send a positive message internationally, but abrupt changes are not practical,” Bajgain added. “Reforms should be strategic and gradual to ensure economic stability.”

Gautam emphasised that the two-tier fare structure was initially meant to subsidise Nepali passengers by charging higher rates of foreigners. “Tourists come to Nepal to spend and enjoy. Travel is both a hobby and a luxury. Their spending boosts our income, so there’s no need to complain of higher domestic airfares for tourists.”

What’s the government’s view?

Every time the government changes, the issue becomes a hot topic.

Former tourism minister Yogesh Bhattarai pushed to abolish the dual fare system and formed a committee. In 2020, a government committee led by former Civil Aviation Authority of Nepal deputy director general Narendra Thapa recommended scrapping the dollar fare.

However, they proposed retaining it on five sectors: Pokhara, Lukla, Jomsom, Simkot, and mountain flights. A subsequent change in government halted further action. But there was no logic as to why the dual system should apply only on these four sectors.

There is also an irony.

While the Civil Aviation Authority of Nepal has recommended removing dollar fares after two years, it amended the Airport Service Charge Regulation in 2022 to collect service charges in dollars. This will help them profit from the fluctuation of the US dollar. “The passenger service charge by the airline operating organisation can be paid in Nepali rupees or US dollars,” the regulation states.

What do airlines say?

Airlines argue that such a crucial decision should not be made without considering the consequences. They claim they could lose more than 30 percent of their revenue, while Nepal’s foreign exchange reserves might also be hit. They warn domestic airfares could rise by 40 percent if the dollar fare is scrapped.

Birendra Bahadur Basnet, managing director of Buddha Air, Nepal’s largest domestic airline, said the move would significantly cut foreign exchange revenue from tourists. “The loss wouldn’t just affect airlines and the national treasury, it would also hurt travel agencies that earn commissions on dollar fares,” he noted.

Helicopter companies would also suffer. “We don’t charge residential diplomatic representatives the dollar fare. Their rates are slightly higher than those for Nepalis, but the dollar fare applies only to foreign tourists,” Basnet explained.

Basnet warned that eliminating dollar fares might mean a direct $75 million a year hit to Nepal’s foreign exchange reserves.

What about other countries?

According to Trip Advisor, several countries use dual pricing for air tickets, charging locals and foreigners different rates. This practice is common in tourism-dependent nations.

In Thailand, some domestic flights have separate rates for Thai residents and international tourists. Indonesia (Bali and other tourist areas) often has lower fares for Indonesians on popular routes.

Likewise neighbour India generally uses uniform pricing for airlines but retains dual pricing for certain tourist services. Another SAARC member state, Bhutan, charges foreigners daily fees covering accommodation, food, and transport, with higher flight fares for non-residents.

Egypt uses dual pricing for entry to historical sites and some transport services. Myanmar has historically charged foreigners higher rates for domestic flights. Lastly, Sri Lanka often charges foreigners significantly more for tourist sites, sometimes 60 times of what locals pay.