The idea of regulating airfares in the Philippines was branded “illogical” as it reduces the competitiveness of local carriers against their foreign counterparts but also might hinder the growth and development of the aviation industry.
Sources with knowledge of the situation have shared that lawmakers have asked Civil Aeronautics Board (CAB) to “put a cap” on the maximum and minimum fares of local airlines, after they were “surprised by the high fares of last-minute tickets”.
CAB Executive Director Carmelo L. Arcilla confirmed the move but added that nothing has been set in stone.
“There is a hearing ongoing about fare regulation, but it is still internal,” Arcilla said.. “The draft is the guidelines which is subject of an ongoing hearing process.”
In the draft, the CAB pointed out the “disparity in ticket prices” as one of the crucial issues, as there were “allegations that airlines have been unilaterally fixing and imposing unjustifiably big fare rates, especially on last-minute passengers”.
Essentially, the proposal would give the CAB authority to issue a fare matrix that would specify floor and ceiling rates per route. The proposed floor rate will not be lower than 20% of the current ceiling rate, while the ceiling rate will be determined by sector distance, breakeven load factors and return of investments.
“The floor and ceiling rate shall take into account factors, such as the need to protect consumers and prevent unfair pricing strategies by domestic scheduled air carriers,” the draft explained.
Aviation expert Avelino L. Zapanta opined that such vision does not conform to the international drill of deregulating airline tariffs.
“I don’t see the logic. It is deregulated and airlines are competing effectively bringing the yields low,” Zapanta said. “Executives of companies have a choice to travel economy. It is their choice to travel class or cheap.”
The commercial aviation industry in the country has been liberalized since the passing of an executive order in 1995, after being cornered for more than two decades.
Zapanta explained that governments around the world made the decision to liberalize their aviation industries to spark a more competitive environment, which guaranteed good services despite cheaper fares.
“The global aviation industry was forced to deregulate to compete and protect consumer interests. It’s going to be a throwback for everyone,” Zapanta added.
Philippines AirAsia Chief Executive Dexter M. Comendador said his group has forwarded a position paper on the proposal, signifying their opposition to because it will have an enormous impact on the industry as a whole.
“We sent them a position paper, but they ignored it. The proposed policy ties our hands,” said Comendador who commented that placing a limit on the minimum and maximum fares would put the riding public at risk, as it hampers competition while constraining choices.
“They want to control the prices by putting a cap on the lowest fares and the highest fares. This means that we cannot sell P1 fare. How will our customers afford our prices if that will be the case?” Comendador said.
AirAsia passengers are mainly composed of millennials and budget travelers.
He continued to explain that the entry of low-cost carriers has allowed the market to develop by making air travel more reasonable to most of the population, citing a 20% increase in domestic traffic in 2006 after the introduction of promo fares.
In the position paper, AirAsia asked for the clarification of the fare matrices, the basis of a ceiling rate and the reduction rate, among others items.
“The impression of a floor and ceiling rate on domestic fares may unnaturally skew average domestic fare to higher levels, while fares for international flights will remain as is.
This may paint an unfavorable picture of the domestic aviation industry and affect domestic tourism, as passengers will opt to travel internationally where fares are lower,” the position paper said.
Comendador stated the group finds the proposal impacting the local aviation industry, as this puts local carriers at the losing end against their international peers, which are currently deregulated.
“Our competitors in the international arena have a free hand, while we would not have it,” he explained. “What we already started—stirring up travel—will be gone.”
Philippine Airlines (PAL) Spokesman Cielo C. Villaluna said her group will also send its own position paper to the regulator, but did not divulge the carrier’s stance for now.
“PAL is in touch with the CAB and will submit our inputs on the matter accordingly. Let it be known that our fare applications are always filed with CAB for approval,” she said.