Controversial Air Ticket Pricing System Collapses

By Liao Jiehua
Published: 2009-09-22

By Liao Jiehua
News, Cover, issue 437, September 21, 2009
Translated by Tang Xiangyang
Original article:

Just six months after the introduction of a controversial new air ticket pricing system, all of the large players in Chinese civil aviation industry have gradually begun returning to the original pricing system.

One anonymous source informed EO that it's not just one individual airline, but that all of China's major airlines have chosen to return to the original pricing system.

The move back to the old system marks the demise of the much maligned alternate pricing system which was first introduced in April this year amid criticism it was little more than an attempt among the major airlines to fix prices in China's domestic civilian aviation market.

The EO had already reported back in May that the NDRC's price supervision office had begun investigating the Civil Aviation Administration of China's (CAAC) ticketing website, TravelSky, along with some of the larger domestic airlines, and by all accounts it was the NDRC that was behind the demise of the pricing system.

Switching Back

The EO has learned that China Southern Airlines reverted to the original pricing system in the middle of September. This was quickly followed by China Eastern Airline's switch back to the old system on Sep 19.

Other Chinese airlines are following suit, with Shenzhen Airlines, Xiamen Airlines and Sichuan Airlines all reverting to the original ticket pricing system.

Air China, though still abiding by the new system, has been offering air tickets with hefty discounts since Sep 1, and is expected to exit the new system altogether in the near future.

The difference between the two pricing systems basically comes down to whether a discount is applied to both of the components of the full ticket price (the NDRC-set bench mark + the airline's floating price) or whether, as with the unpopular new system, only the benchmark price is taken in to account when working out the discount on a ticket.

When TravelSky first announced the new system in March, they explained that the largest discount available on an air ticket under the new system would be 76% off the standard price, this was in contrast to the maximum discount of 96% off the original offered under the old system.

"To be honest, under the new pricing system, it's not easy even for our booking agents to work out the price of any given ticket," a ticket seller at Guangzhou's Baiyun Airport admitted to this reporter.

It's predicted that tickets will be between 10 and 20 percent cheaper, now that airlines are returning to the original pricing system.

So far, all the airline companies have refused to be interviewed on the ticket pricing issue.

However, an unnamed China Southern Airline employee revealed to the EO that, many passengers had been puzzled by the non-round number discounts in the order of 16, 24 and 48 percent on offer under the new system. He also admitted that China Southern, in an attempt to lure consumers, had offered tickets with a discount of over 80 percent (beyond the agreed framework of the new system), but that the results failed to meet their expectations.

This China Southern employee also noted that, since the third quarter was traditionally a busy time for airlines, the readjustment wouldn't have a big an impact on the industry.

Those familiar with the aviation industry said, this round of a low-key readjustments to the pricing system, was perhaps connected to recent attempts to rein in monopoly pricing in various industries.

Did NDRC Uncover Price Fixing?

Not long after the new system was released, Qiu Baochang, chairman of the Consumer Protection Professional Commission under the Beijing Lawyers Association and the senior partner of Beijing Huijia Law Firm, contacted the NDRC suggesting an investigation into any possible collusion that might have taken place among the airline companies.

Qiu, who helped draft the Anti-Monopoly Pricing Act (draft), says that the act defines two kinds of monopoly pricing behaviour.

In Qiu's opinion, the new pricing system falls in the first category: when operators have simultaneously settled or changed the price of some commodity based on a similar standard.

Qiu argued that "It will be very tough on the airlines if the act takes effect and they are still refuse to change," going on to add that "It's a wise move on their part to adjust the pricing system before the act is passed into law."

The new ticket pricing system was blamed for the increase in the price of air tickets that took place after the new system was introduced on April 20, this year.

Though we know that the NDRC began investigating the many allegations of price fixing that were bought against TravelSky, the result of these investigations are still not public knowledge.

TravelSky has claimed that it's simply a service provider and that it has no say in deciding ticket prices. However, TravelSky is a virtual monopoly supplier of air tickets that control 97% of the airline ticket market. It's a state-owned business listed on the HK stock exchange and a large majority of its major share holders are state-owned airline companies.

It's reported that the NDRC then turned their investigation to the role played by Air China, but no one knows the results of this investigation.

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