Can Plane Ticket Price Rise Help Tide over Difficulties?

In the past two days people have noticed price rises in plane tickets. Related experts analyzed that with China's WTO entry drawing near, the space for price rises of plane tickets is dwindling. Meanwhile, plane tickets for international flights are being sold at a certain discount. The market situation reminds civil aviation departments that they should surmount difficulties by straightening out the existing system through reform, instead of by raising plane ticket price.

Sources say that the State Development Planning Commission has approved the adoption of floating prices of domestic flight tickets by China's civil aviation. Specifically, in order to reduce the influence caused by the sustained rises of the prices of aviation kerosene on the increase of transportation costs of aviation companies, starting from November 1, the prices of the tickets for domestic air routes are allowed to float within the range not exceeding 20 percent of the published price levels. The highest float of the prices of one-way tickets cannot exceed 150 yuan; a linkage system should be established to suit the prices of plane tickets for domestic air routes with changes in the prices of aviation kerosene. In the future, whenever the accumulative price of aviation kerosene rises or drops by 10 percent, air companies can raise or reduce the prices of tickets for domestic flights by 3 percent; the specific lines, range and time for implementation of the float system are to be decided by the air companies themselves in light of the supple-demand situation of the market, and the decision should be published seven days in advance.

Civil Aviation and Administration of China (CAAC) explained that since November 1999, the price of aviation kerosene has been raised for eight times at an 86 percent rate, among which, the price of aviation kerosene was increased by 480 yuan per ton this October, up by 25 percent. It is estimated that China's aviation industry as a whole will have therefore to increase its expenditure by 4 billion yuan this year. Thereupon, rise in air ticket prices is an action taken "under compelling circumstance".

Professor Xu Guangjian, Chinese price expert and dean of the economics department of Renmin University of China, is of the opinion that rises in prices can only be a "stopgap" which helps China's aviation industry tide over the difficulties temporarily. In light of the general economics theory, how much the prices should be raised or decreased is up to the enterprises. Cost is the basis for enterprises to fix their prices. Whether the passengers can accept the prices will decide the fate of the enterprise. Therefore, price is called an "invisible hand". Passengers in their journey long for a safe, comfortable, fast and economical journey. How much can the transport enterprises satisfy these four key elements decides the choices of the passengers.

Another analysis reveals that hidden behind change in the domestic plane ticket price is the current system of China's aviation which is the root cause of high cost and unprofitable prices of airlines, it is also the reason explaining why the government has to exercise control over the prices of plane tickets. Cost is the basic element that decides the prices. The main factor for the high price of plane tickets is the high cost which, in turn, has something to do with the excessive number of airlines in China. A company can be set up with only several planes. And a general corporation has under it subsidiaries. A small airline naturally operates at higher cost. Besides, all Chinese airlines are State-owned enterprises. Their property rights are indistinct and they have not as yet been dissociated from the government, and so they are not "independent accounting companies" in real sense. In the low-price dumping in 1997 and 1998, the money gained from price difference mostly fell into the pockets of the middlemen and the airlines suffered huge deficits. The result of selling plane tickets at a "discount" impaired the country's interests while fattened small groups. Supporting this "price war" features the existing property right relationship.

Viewed from the competition angle, Price rises can only be affirmed when the passengers accept them. China raised the speed of railway for the third time in October, while maintained the original prices of train tickets. With the speed increased and time shortened, unchanged price is tantamount to a relative price reduction. In face of the rises in plane ticket prices and reductions of train ticket prices, it is inevitable that more people will choose to travel by train. So in the competition between aviation and railway, the former will be in an inferior position. According to sources, on the 108 jointly operating air routes, 23 domestic airlines fixed the price rise of plane tickets temporarily at a 15 percent rate for fear of losing the source of passengers, leaving some leeway compared with the 20 percent raise approved by the State Development Planning Commission.

In the view of related experts, neither over-high nor over-low price is helpful to the development of a trade. An overly high price can only lead to the pursuit of short-term effect, while an excessively low price will entail a reduction in product quality. There should be a stable price floating system. The fundamental way out for China's aviation lies in the further reform. First is straightening out the system. Governments at all levels should withdraw from the aviation business. The airlines should strive for survival in the market. Second is developing business of scale and setting up enterprises groups. With rationalization of system, airlines operate in accordance with the market rules, the cost naturally comes down, and the price of plane tickets can get close to passengers' needs.



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