AirAsia Philippines concerned over proposed caps on fares
PHILIPPINES AIRASIA, Inc. is opposing the plan of the Civil Aeronautics Board to impose caps on domestic airfares, saying the said move “could lead to the demise of smaller carriers and dampen the tourism industry.”
In a letter addressed to the Civil Aeronautics Board (CAB) Executive Director Carmelo A. Arcilla dated Sept. 25, Philippines AirAsia said it hopes the CAB will reconsider its position on the “re-regulation of fares,” warning this could set a precedent for regulation in the future.
The budget carrier was reacting to the CAB’s draft resolution which proposed a ceiling on the lowest and highest fares for domestic flights.
AirAsia sought clarification on what CAB defines as “economy class basic fares” and explanation on the bases of its plans to fix the lowest rate at 20% of ceiling rate and to apply a 30% maximum reduction rate.
It also asked the CAB to clarify how it will determine the ceiling rate per route, noting that airlines have different operating costs and break-even load factors.
“The imposition of a floor and ceiling rate on domestic fares may unnaturally skew average domestic fares 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,” AirAsia said.
The airline said the proposed caps on domestic fares “will only benefit 1% of the travelling public as most travelers plan their trips and are able to take advantage of lower priced offers when tickets are purchased well in advance.”
“The remaining majority will be aversely affected by the rise in lower tiered fares due to the 20% cap of the highest fare,” AirAsia said.
It noted the entry of low-cost carriers has “enabled the market to grow by making air travel affordable to majority of the population,” while the dynamic revenue management system allowed the airline to offer promotional fares.
“As evidenced by the 20% growth in domestic traffic in 2006 after the introduction of the promotional fares as low as P1, the (low cost carrier) model has truly revolutionized air travel in the Philippines,” the airline said.
Philippines AirAsia is planning to raise up to $250 million from an initial public offering by mid-2018. Proceeds from the planned offering which will be used mainly to expand its facilities.
AirAsia Group Chief Executive Officer Tony Fernandes earlier said the planned IPO of the Philippine and Indonesian units is part of a plan to consolidate its Southeast Asian units under one listed holding company. — P. P.C. Marcelo