Should airlines lower their fares to fill seats or keep prices fixed and fly half-empty planes?

 

For travelers, the answer is crystal clear. But for the nation's large air carriers and authorities, the response is either negative or ambiguous.

 

That question, however, has been dogging Shanghai-based Spring Airlines for the past year, despite the fact that frequent flyers have enjoyed its discount fares.

 

The budget airline kicked off 2007 by launching two routes: Shanghai-Qingdao-Harbin and Shanghai-Zhengzhou. Fares for the Shanghai-Qingdao-Harbin route are as low as 399 yuan, while tickets on the Shanghai-Zhengzhou and Shanghai-Qingdao routes are just 99 yuan.

 

This is certainly good news for travelers. It is also daring for the private airline, which is yet to recover from a recent crisis over its low fares.

 

The pricing bureau in Ji'nan, capital of East China's Shandong Province, decided on December 14 to fine Spring Airlines 150,000 yuan for selling 400-plus tickets for 1 yuan on the Shanghai-Ji'nan route.

 

Spring Airlines was charged with defying the pricing rules set by the General Administration of Civil Aviation of China (CAAC). Under the rules, the lowest discount possible is 55 per cent off the standard rate.

 

Spring Airlines argued that it was a one-off promotion, just like the 1-yuan cell phones on the market. It also cited another document that indicated the CAAC would gradually abolish the bottom line for discount fares.

 

In fact, the airline submitted a report to the CAAC and the National Development and Reform Commission in September 2005 requesting a more flexible pricing system, but never received a reply.

 

Spring Airlines asked for a public hearing for the Ji'nan case on December 16, but 10 days later it withdrew the request without saying whether the pricing bureau would also drop the case.

 

It is not the first time Spring Airlines has been targeted by either the authorities or the nation's major air carriers for offering discount fares.

 

By offering low fares, Spring Airlines has been able to keep an average occupancy of 95 percent, the highest of the nation's airlines. Its 2006 profit was estimated at 20 million yuan, a big contrast to some of the large airlines that are still operating in the red.

 

What is revealing here is whether the nation's major airlines are willing to learn from Spring Airlines so that their planes do not take off with rows of empty seats.

 

What is more important is that, as mostly State-owned enterprises, the major airlines should make better use of resources to service the needs of the public for fast and affordable transport.

 

The CAAC should help settle the case by creating clear regulations with consumers in mind. Operating an empty or half-empty plane does not make sense for anyone.

 

(China Daily January 5, 2007)