23 September 2018

Price deregulation benefits airlines, not travelers

More than a month after the Civil Aviation Administration of China scrapped a price floor and gave more freedom to airlines to set their fares on 31 domestic routes, passengers are realizing the grim fact that the anticipated benefits — lower ticket prices — were just a mirage. Instead, many travelers are finding out that they are, in fact, now worse off than before.

As base prices of the specified short-haul flights now rest with the airlines rather than the government, there had been high hopes earlier that the reform would result in a price war in the industry and pave way for low-cost flights to take off.

But such hopes have turned out to be wishful thinking. The big three carriers, namely Air China (00753.HK), China Eastern Airlines (00670.HK) and China Southern Airlines (01055.HK), have surprised the market by rushing to raise their ticket prices after the deregulation.

Even though most of the 31 routes face stiff competition from high-speed rail services, airlines have opted to raise their fares to offset the rising fuel and labor costs, rather than cut the prices to grab more market share. The mark-up in fares has generally been around 10 percent, Shenyang Evening Post noted.

The move looks a bit weird but is not inexplicable. Since the nation’s airspace is getting saturated, it is basically impossible for the airlines to go head to head with high-speed trains by increasing the daily flights, Securities Times quoted China International Capital Corp. as saying.

Therefore, instead of undercutting the railway to win business volume, domestic carriers would rather chase profits by targeting the high-end travelers who look for faster service.

– Contact the writer at [email protected]


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