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Government relaxes control of airfares, finally
By Cao Desheng (China Daily)
Updated: 2004-03-18 23:38

The market may soon play a bigger role in determining the cost of airfares in China.

A new regulation on the pricing of flight tickets, which will take effect on April 20, allows for more fluctuations in pricing depending on market demand.

A new regulation on the pricing of flight tickets, which will take effect on April 20, allows for more fluctuations in pricing depending on market demand. [newsphoto]

The National Development and Reform Commission (NDRC) and the General Administration of Civil Aviation of China (CAAC), the industry's watchdog, Thursday unveiled the long-awaited pricing reform.

Documents released by the commission suggest airlines will be entitled to decide prices based on the base price -- which remains at 0.75 yuan (9 US cents) for each person per kilometre. The range of fluctuation will be regulated by NDRC and CAAC.

For short air routes between neighboring provinces, municipalities and autonomous regions, the price of air tickets will be allowed to fluctuate freely, without regulations.

For other routes, the new policy will permit a 25 per cent up or 45 per cent down fluctuation based on the official ticket price.

On special air routes where only one airline operates, the discount level can be decided by the airline itself in line with the market.

Airlines that expect to lower their air tickets prices beyond the range allowed by the government, will have to seek approval from the NDRC and CAAC.

The new regulation takes into consideration advice and proposals from consumers, airline managers and aviation experts sought during a public hearing last July.

With the rapid development of the nation's civil aviation industry, competition between domestic airlines has become increasingly intense. At the same time, the nation has decided to explore the possibility of gradually loosening control of pricing.

The new policy, which gives domestic airlines more powers to make their own decisions, allows them to compete on a fair basis and expand to wider markets, said an official with NDRC who declined to be named.

Meanwhile, consumers can benefit from discounts of air ticket prices, he added.

The new regulation also strengthens government supervision of the domestic air transport market to prevent vicious competitions among airlines, the official said.

CAAC allowed ticket price discounts to attract more passengers in 1997. The move was warmly welcomed by air passengers.

However, the measure eventually led to negative price competitions among airlines due to inadequate market regulations. As a result, the industry suffered a loss of 2.4 billion yuan (US$289 million) in 1998.

In 1999, CAAC resumed its fixed-prices system, helping the sector return to profitability.

But, permanently banning discounts prevents the industry from meeting the demands of the fast-developing economy. So the regulation both intensifies overall government control but gives more powers to the airlines themselves, the official said.

In time, China's aviation authorities will become supervisors of air ticket prices instead of directly fixing them, he said.

The official was cautiously optimistic about the implementation of the new regulations, saying they will be tested in practice.

Officials from domestic airlines including Air China and China Eastern Airlines refused to comment, saying the new regulation has not reached them.

Some customers contacted by China Daily also showed indifference to the new policy.

"I travelled to Shenyang last year on a 55 per cent discount ticket, so what's the new policy about?" said Chen Jian, an employee of an IT company in Beijing, who often takes business trips through out the country, adding he cares more about air service.

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