The International Air Transport Association (IATA) has produced a new
position paper (pdf) to defend the need for pricing freedom for airlines.
“We have seen an increasing number of states proposing that air fares be regulated by governments. But it needs to be recognized that the strong demand for air travel over the years has been driven by an increase in air connectivity coupled with a fall in real transport costs. This is achieved thanks in part to the pricing freedom that airlines enjoy,” said Vinoop Goel, IATA’s Regional Director for Airports and External Relations, Asia Pacific. The 2019 average return airfare (before surcharges and tax) is expected to be $324 (2018 dollars), which is 61% below 1998 levels after adjusting for inflation.
“The perishable nature of the airline product and a need to cover high fixed costs mean that an airline must focus on achieving the optimal combination of load factor and yield in its revenue management,” said Goel. “Airlines rely on their ability to create and price their products freely and flexibly to mitigate the effects of demand unevenness, demand volatility and the competitive nature of the industry.
In order to maintain optimal load factor and high fixed costs, airlines use:
- Different pricing models for flights in high demand and lesser demand. This allows the flights to be filled and continue to be scheduled.
- Priced flight cancelation or change which makes buying tickets early cheaper and allows airlines to maintain routes as they are filled.
- Customized service and ancillary products to meet different traveler needs. This helps airlines to differentiate themselves in highly competitive environment.
“Any restriction on an individual airline’s commercial pricing policy will make it difficult for airlines to mitigate the demand and industry challenges they face. This will ultimately reduce the benefits that consumers currently enjoy,” said Goel.
