Cap or no cap on airfare?

TWO years ago India wanted to cap domestic airfares but then decided against it.

The talk has resurfaced again but do they really want to implement it?

They were then acting on complaints by travellers that airfares needed be capped because of exorbitant fares during festive seasons. But they also felt competition among the airlines will take care of the problem. They were thinking of the consumers and the airlines, it has to be a win-win for both parties and they believe the move may discourage some airlines to fly on non-profitable routes.

A price cap on domestic airfares is something being talked about here too. The regulator of the industry, Malaysian Aviation Commission (Mavcom) is conducting a study to see if it is viable and by June they would have concluded the study.

This arose following complaints that fares increased by up to five times the normal during public holidays and ceiling prices for domestic fares should be set. The idea of the ceiling is to ensure airfares remain affordable, especially for the flights between the Borneo states and Peninsular Malaysia.

Former Malaysia Airlines CEO Tan Sri Abdul Aziz Rahman is not for fixing of ceiling prices. His rationale is that airfares are set based on the costs of a certain route and competition between airlines and there is a lot of competition where domestic routes are concerned. He does not want the government to interfere as they wouldn’t know an airline’s operating costs.”

There are several players in the domestic market, be it AirAsia, Berjaya Air, Firefly, Malindo Air and Malaysia Airlines, so there is enough competition in the market place. For now, AirAsia has a bigger control of the domestic market share.

Before AirAsia’s entry only the rich could travel by air and a return ticket to Singapore was a hefty RM840. To go to Sabah and Sarawak, you needed more money then but after AirAsia’s arrival, the dynamics have changed.

“Now everyone can fly” and the arrival of Malindo Air has further fuelled competition and many people have been able to take to the skies. This is also fuelled by economic factors, affordability and the rising middle class.

As at end 2017, close to 96 million passengers flew from the various airports in the country. In KLIA alone, 58.5 million passengers were recorded. That goes to show that lower fares and competition has enable more to fly.

Airfare pricing is an important component for a traveller and it should be kept at reasonable rates. Airlines also do engage in price gouging. This means, a seller spikes the prices of goods, services or commodities to a level much higher than is considered reasonable or fair, and is considered exploitative, potentially to an unethical extent.

Price gouging happens in most markets globally, especially during festive seasons or when disaster strikes.

Having a ceiling for fares for festive seasons would help. However, one of the dangers of fixing a cap is that airlines may decide to use that pricing all the time and thereby consumers will not have a chance to have lower fares.

Airlines need to make money so that they can continue to operate and offer reasonable airfares, and consumers need reasonable fares so that they can continue flying.

Before even embarking on this matter, the regulator should engage with airlines and consumers alike to find out the range within the maximum and minimum fares for each and every route. It needs to do a lot of checking to find out which are the sectors that face such problems and why.

It is a fine balance for the regulator to ensure it is a win-win for the airline and travellers. Whatever is done, the move should not stifle growth of the sector and they should be looking at lowering fares.