UK CAA to end fares regulation

[Flying Lawyer]

The UK CAA announced today it has decided to discontinue regulation of long-haul air fares.

The CAA has regulated fare levels for more than 30 years and, at present, regulates fully flexible economy fares (Y2) on around 40 long-haul routes - Y2 are the most profitable economy fares.

Regulation will be removed in two stages:

(1) Long-haul routes other than UK-USA from 1 December 2006

(2) UK-USA routes deferred until other pricing restrictions* in the UK-USA market are removed.

(* Including ‘sum-of-sector’ policy which restricts the ability of airlines to offer fares for travel via an intermediate point that are lower than those available on direct UK-USA services.)


More details here: http://www.caa.co.uk/docs/589/ERG_EPIA_20061116FaresDecisionDocument.pdf


Good for the industry or not?


FL

[Flying Lawyer]

A2QFINever mind the industry - is it good for the passengerss and their wallets?
Never mind the industry? :confused:
I was interested in the views of people in the industry - possible long-term effects on airlines, survival, employment etc - so asked here in the industry forum.

Passengers are (understandably) interested in cheaper fares.
Most think airlines operate on enormous profit margins - the facts: Airline sector profit margin (http://img.photobucket.com/albums/v146/FlyingLawyer/airlinesectorprofits.jpg)
(Note the profit margin of the entire world airline sector compared with one company (BP) in the oil sector, and also BAA's profit margin.)

UK-USA fares are already cheap: Number of days to work to earn transatlantic airfare at the average UK wage (http://img.photobucket.com/albums/v146/FlyingLawyer/transatlantic.jpg)
Passengers would (understandably) like them to be even cheaper, but it's already an extremely competitive route. Would existing carriers survive lower fares? Or is the future in lo-co transatlantic carriers?


I'm not arguing against deregulation, simply wondering what people in the industry think the long-term effect might be on the industry - if any.



FL

[Final 3 Greens]

FL

I reckon that when dealing with complex systems, one must assume that unintended side effects will result from most alterations in regulation, since the changes effectively destablise a system, transforming it from a static to dynamic state.

Human ingenuity then seeks out opportunities, which impact the market and whhether these are good or bad is largely a matter of perception, based on your point of view.

e.g. Ryanair - good or bad for the sector? Many would say bad, as the drive for lower operating costs has eroded traditional T&Cs, yet at the same time there are many young pilots who would never have got into the RHS of a jet so quickly without FR, then again they have had to pay for their own type ratings etc......

So, I would not like to predict what will result from these changes, but can predict with a degree of confidence that it will not be quite what the regulators expect.

[Fargoo]

The regulations were in place to keep an eye on fares due to the lack of competition on these routes. They were never interested in keeping the fares high.
Just means one less thing for the CAA to do.

[Bronx]

They were never interested in keeping the fares high.

So why weren't carriers allowed to charge less than the regulated fares if they wanted to?

[alexss]

So why weren't carriers allowed to charge less than the regulated fares if they wanted to?

They were.

The regulated prices were the maximum, applying to fully flexible economy tickets only. In recent years few pax have bought these types of tickets.

[Globaliser]

The CAA has regulated fare levels for more than 30 years and, at present, regulates fully flexible economy fares (Y2) on around 40 long-haul routes - Y2 are the most profitable economy fares.That was interesting - thanks. I'm surprised that these fares amount to as much as 3% of headcount, which is what the document says.

Has the CAA been regulating the endorseable fully flexible fares (Y) as well as the Y2 fares? Or will Y fares still be left to IATA?

[Maloska]

The 3% of UK long-haul sales is an estimate, and an average with a wide variation between routes depending on traffic mix. The % appears to have been declining.

The IATA Y fares would not have been regulated unless there was no Y2 alternative on offer. The IATA Y fares tend to be considerably higher and on most routes from the UK are unlikely to be more than "paper" fares used for benchmarking, proration, etc.