CAAC Eases Airfare ControlsAfter encountering some strong turbulence, China's stringent air price control policy is coming in for a soft landing.A "flexible price under a macrocontrol" system will be implemented after the formal establishment of three major airline groups in China, sources from the Civil Aviation Administration of China (CAAC) said. In mid-July this year, the CAAC announced that, based on the nation's three major carriers - Air China, China Eastern Airlines and China Southern Airlines - seven smaller airlines, having assets of approximately 50 billion yuan (US$6.024 billion) and directly controlled by CAAC, would be merged into three new groups. The CAAC also "encouraged and supported" smaller airlines controlled by provincial and municipal governments to enter the groups freely. "The CAAC will focus on policy-making and the industry's general administration instead of being directly involved in group management after the merger," Ma Tiesheng, director of CAAC's General Affairs Office, said. The State Development and Planning Commission (SDPC) and CAAC will jointly set price ceilings for the groups. The groups will be allowed to adjust their airfares "no matter up or down" under the limit in accordance with the fluctuations of supply and demand, Ma said. According to the Beijing Economic Times, the SDPC is planning to slash unreasonably high air ticket prices. A report on a Sichuan TV station said the cut could be as high as 20 per cent. China's civil aviation was largely a sellers' market before 1997, but shifted to the demand side after September 1997 partly because of the Asian financial crisis. China's civil aviation industry suffered an operational loss of 560 million yuan (US$67.47 million) during the first six months of this year, a decrease of 1.15 billion yuan (US$138.5 million) from the same period of 1999, CAAC statististics show. In order to limit losses sectorwide, the CAAC used its administrative monopoly to artificially raise airfares by introducing a no-discount policy in May 1998 and February 1999. "Though CAAC used the excuse of air safety to act, the uniform price system caused public complaints and strained consumers," Hu An'gang, a researcher with the Chinese Academy of Sciences, said. Some insiders argued that the policy might be understandable in a country during a transition from a planned economy to a market one. "The monopoly airfare only reduced short-term losses, protected small firms that could not compete and kept potential consumers away, but it could not solve the basic embarrassing problem of overcapacity, the result of blind expansion and excess staffing," Hu said. An unidentified official with the mechanism reform office under CAAC admitted that under the price alliance, the airline industry had suffered a decrease of 3 million people travelling by air in 1999. According to CAAC figures, 35 registered civil aviation enterprises share only 500 passenger aircraft. Because of small scale economy and high costs, most enterprises are stuck in the red. "Faced with strong competitors, such as high-speed trains and buses, and China's pending entry into the World Trade Organization, the CAAC should undertake a big alteration of its administrative mechanism," Hu indicated. In his opinion, fixed prices are a surface issue. Solutions to fundamental problems are changing the role of CAAC and requiring the consolidation of the aviation industry. The move to establish the three major airline groups symbolizes the fact that the aviation industry is being transformed from an administrative institute to market-oriented activity focused on enterprise groups. |
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