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Oil price declines fail to bring air fares down

Updated January 30, 2015



LAHORE: Air passengers travelling to and from Pakistan may not benefit from the lowest oil prices in six years as no airline, including the Pakistan International Airlines, has shown any intention of cutting fares.

Market sources blame ‘cartelisation’, or to put it mildly, ‘mutual understanding’ between the PIA and other airlines operating here for denial of relief to passengers. They say the airlines see the oil price decline as a golden opportunity to ‘recover their earlier losses’. Crude oil prices have plummeted to $46 per barrel – a 55 per cent fall since last June, primarily because of rising global supplies and weak demand.

According to PIA spokesman Hanif Rana, the airline has reduced fares on some routes, especially on European destinations, by up to 20pc. But travel agents counter this claim, saying these are usual off-season discounts PIA was in any way constrained to give to maintain reasonable passenger traffic. On the contrary, PIA increased fares on some Gulf and domestic routes recently. The increase in Umra ticket prices has been substantial, exposing it to flak from intending pilgrims.

According to PIA, an estimated 5.5 million people travelled on international and domestic flights of the national flag carrier last year. The estimated number of those who travelled by foreign airlines is over 8m and those who used Pakistan-based private airlines is 1.5m.

An aviation expert based in Karachi, who doesn’t want to be named for professional reasons, is not surprised that there has been no downward revision in air fares. “Fares go up when there is an increase in oil prices in the international market — which doesn’t mean they would come down when oil prices fall,” he says. “And which sector in the country has provided any relief to people in the wake of the falling oil prices? The case of the airlines is no different. The International Air Transport Association – a global body which regulates international air transport – is concerned about cartelisation but it has no say in rationalising air fares.”

The airlines operate as per market needs. If an airline has monopoly over certain routes, it will never feel compelled to reduce fares, and this is what is happening in the present instance where passengers are denied relief which is their due.

A passenger is charged under four heads: basic fare, excise duty, airport taxes and fuel surcharges. “Fuel surcharge accounts for about 40pc of the total fare (for any destination). Most airlines had earlier decided in principle that they would readjust fuel surcharge according to the change in fuel prices in the international market. In Pakistan, none has so far delivered on the promise” the aviation expert said.

So what’s the solution? The tough part is that most of the experts Dawn talked to maintained that PIA, which is part of the problem, also has the key to finding an answer. “PIA should be aiming to give other airlines a tough time by setting the fare benchmark on routes these other airlines are operating regular flights on. So what if competition requires initiating new flights and requires PIA to acquire more planes on wet lease to meet the rising demand. A service bearing the national-carrier tag should not be reluctant to do what it takes.”

Under a wet lease agreement, an airline provides aircraft, pilots and cabin crew, along with maintenance and insurance facilities, while under a dry lease only aircraft are provided. The PIA has already acquired six aircraft from Turkey and Bulgaria on wet lease. This move is helping it somehow run its operation smoothly. At present, the PIA has some 30 aircraft in its fleet, including the six it has on wet lease.

As the PIA is faced with a serious financial crisis, some experts fear that a time might come when some foreign airlines, especially those based in the Gulf, would soon have complete control over the fare regime.

Dawn emailed a query to a couple of foreign-based airlines. Of them Etihad responded: “Ticket prices are made up of a combination of elements, including fuel surcharges. Etihad Airways continuously monitors and adjusts total ticket prices to ensure that we are competitively positioned in the markets we operate and sell in.” But it did not say categorically that it was going to reduce fares.

Some PIA officials Dawn spoke to said the open sky policy had given ‘extra-benefits’ (in terms of access to a number of cities of the country) to the Gulf-based airlines. This had led to closure of a number of foreign airlines that resulted in virtually ‘no competition’ among those operating from here.

Pakistan has lost over 20 foreign airlines, mostly based in Europe, over the past 15 years or so. At present, some 15 foreign airlines – Etihad Airways, Qatar Airways, Emirates, Oman Air, Fly Dubai, NAS, Air Arabia Kuwait Airways, Thai Air, China Southern Airlines, Turkish Air, Iran Air and Air Lanka – are operating from Pakistan.

Most European airlines closed their operations from Pakistan after 9/11. The issue of inadmissible passengers was one of the main reasons behind the packing up of foreign airlines.

Published in Dawn, January 30th, 2015

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