Business

CCP clears Airblue and Shaheen Airlines from extra airfares allegation during PIA’s strike

February 23, 2016

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CCP concludes enquiry into exorbitant increase in airfares

Finalising the report of alleged increase in airfares, the Competition Commission of Pakistan (CCP) on Monday cleared Airblue and Shaheen Airlines from allegations of plundering customers during PIA’s strike in Pakistan.

The report, which was released on Monday, said: “It was concluded from the analysis of the data that on the routes examined the increase in airfares was not as exorbitant as was alleged rather the increase was merely due to an increase in demand and the normal operation of the Revenue Management System whereby last minute bookings are charged a higher rate.”

The report said the Enquiry Committee did not receive any evidence from consumers to substantiate a three-fold increase.

While finalising its conclusions the Enquiry Committee took into consideration the fact that normal market conditions were restored once the strikes were called off. As per international practices competition agencies refrain from interventions if the market has the ability to auto-correct as happened in this case. Therefore, after a thorough analysis of facts and data before it the Enquiry Committee concluded that no prima facie violation of Section 3 (Abuse of dominant position) of the Competition Act, 2010 occurred, the report said.

The CCP had taken notice of the concerns expressed over media and other forums relating to the conduct of the two private carriers during the suspension of PIA flight operations from October 1-7, 2015 and February 2-9, 2016. It was alleged that fares had been hiked by as much as 300 per cent.

A five-member Enquiry Committee was appointed to determine whether the private operators had exploited consumers during the time period under review by charging exorbitantly high airfares. Airblue and Shaheen Airlines were asked to submit detailed information on airfares charged for each passenger on domestic routes for the period under investigation as well as the preceding months. The Commission also issued a press release asking consumers to come forward and provide evidence of tickets purchased at high rates.

It was observed that as per standard industry practice worldwide, Airblue and Shaheen Airlines employ a Revenue Management System allowing them to set different parameters for determining the basic fare, some of which are demand and supply, size of the aircraft, the route, time of booking and passenger load on other airlines etc.

The lowest fares are invoked when the booking is made well in advance, as the time of the flight approaches near, the higher fare classes are invoked depending on the availability of seats, the report said.

The Enquiry Committee analysed airfares on the major domestic routes of Karachi-Islamabad, Islamabad-Karachi, Karachi-Lahore and Lahore-Karachi.

The airfares charged when PIA flight operations were suspended were compared with airfares charged under normal market conditions i.e. the months immediately preceding each strike. The results showed that for Airblue, on average, the change in fares when compared with immediately preceding month ranged from Rs 159 to a maximum of Rs 2,766. The maximum increase of Rs 2,766 was charged in the case of two special flights between Karachi and Islamabad between February 2 and 4. Fares on these flights were higher due to special arrangements made (arrangement of aircraft, crew, fuel etc.) and last minute bookings to facilitate customers of PIA.

For Shaheen Airlines the change in average airfares when compared with immediately preceding month ranged from a fall of Rs 320 to a maximum increase of Rs 1,933.

While comparing fares charged during annual peak season, in the month of July when demand is at its highest, with the maximum fares charged during the period under review, the Enquiry Committee observed that the fares during the period under investigation were lower than those charged during peak season.

The Enquiry Committee also observed that the average fares of PIA are generally higher than the two private airlines.

After reviewing the Enquiry Report, the commission has decided to conduct a comprehensive competition assessment study on the aviation sector. The study will analyse entry barriers, regulatory measures and the possible policy level competition issues in the pricing of airfares.

The Competition Commission is authorised to undertake sector studies under Section 37 of the Competition Act, 2010 with a focus to remedy potential competition concerns to allow for maximum competition in the industry leading to better choices and prices for consumers and a level playing field for businesses.