ISLAMABAD - The Competition Commission of Pakistan (CCP) has completed its enquiry into the alleged exorbitant increase in airfares by Airblue and Shaheen.

The commission had taken notice of the concerns over the conduct of 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 were increased by as much as 300 percent.

A 5-member committee was constituted to determine whether the private operators had exploited consumers’ helplessness during the period under review by charging exorbitantly high fares.

Both the airliners were asked to submit detailed information on the fare charged from each passenger, traveling on a domestic route during the period under investigation as well as the preceding months. The commission also issued a press release, asking the passengers to produce their tickets, purchased on higher rates, as evidence.

It was also observed that as per the standards practiced worldwide, Airblue and Shaheen have a Revenue Management System that sets different parameters for determining the basic fare. The lowest fares are invoked, when the booking is made well in advance, and when time of the flight approaches, the higher fares are invoked, depending on the availability of seats.

The committee analysed airfares on major domestic routes, namely 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 show that for Airblue on average the change in fares when compared with immediately preceding month ranged from PKR 159 to a maximum of PKR 2,766. The maximum increase of PKR 2,766 can be attributed to the operation of two special flights between Karachi and Islamabad in the period of 2-4 February. Fares on this flight were higher due to special arrangements made (arrangement of aircraft, crew, fuel etc.) and last minute bookings to facilitate customers of PIA. For Shaheen the change in average airfares when compared with immediately preceding month ranged from a fall of PKR 320 to a maximum increase of PKR 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 the peak season. The Enquiry Committee also observed that the average fares of PIA are generally higher than the two private airlines.

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 Enquiry Committee did not receive any evidence from consumers to substantiate a three-fold increase. While finalizing 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 has happened in the instant 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 was made out.

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

It is important to highlight that the Commission can 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. NNI