The Civil Aviation Administration of China (CAAC) has ordered airlines to pool revenue on domestic routes in its latest bid to end fare discounting. The move marks Beijing's rejection of calls to ease price and capacity controls and allow airlines to respond more to market forces.
Under the temporary revenue scheme, ticket income on 100 routes in China is to be pooled and divided between airlines. An airline's share will be based on the number of seats that it flies on a particular route. Details are unclear.
"The purpose of this is to prevent airlines from offering discounts and to reduce competition among Chinese airlines," says Liu Wenbo, China Southern's chief financial controller.
The CAAC has been battling fare discounting for two years. In late 1997 it allowed airlines to deviate from set prices, but resulting fare wars were so bloody that it rescinded that approval six months later. It has since tried slot suspensions, revoking travel agent licences and threatened criminal prosecution in an unsuccessful campaign against discounting.
The CAAC's effort has prompted a debate within China, with airlines openly critical and demanding market relaxations. Official newspapers acknowledge that set prices may boost revenue, but do not address "major deep-rooted problems" within the industry.
The main problem is the need for consolidation. Beijing continues to unveil proposals, but none has been implemented. The latest one calls for a vertical integration with Air China, China Eastern and China Southern at the centre of three giant groups. This may have more chance of success than the horizontal integration of Air China and China Southern, proposed last year.
Source: Airline Business
