Competition Commission of Pakistan concludes enquiry into alleged exorbitant increase in airfares by private carriers

Islamabad, February 22, 2016 (PPI-OT):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 concerns expressed over the 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%.

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 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 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 ticket, 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 Enquiry Committee analyzed 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 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.

For more information, contact:
Asfandyar Khattak
Director (Media and Communications)
Competition Commission of Pakistan (CCP)
7th Floor South, ISE Towers,
55-B, Jinnah Avenue, Islamabad, Pakistan
Tel: +92-51-9100260-3, +92-51-9100256
Fax: +92-51-9100251