Director General of Civil Aviation steps into stop ongoing price wars

The Director General of Civil Aviation (DGCA) has asked all airlines operating to Colombo to file their fares with the Civil Aviation Authority (CAA) in an effort to stop ongoing price wars and undercutting. The directive is effective from October 1, 2016.

The circular with relevant instructions was sent out to airlines yesterday afternoon, H M C Nimalsiri, DGCA, said. A copy of it was obtained by the Sunday Times. It points out that scheduled airlines operate to Sri Lanka based on an authorization granted by the CAA upon obtaining the requisite traffic rights through a bilateral air service agreement between Sri Lanka and the respective Government.

“The aforesaid bilateral air services agreements are based on the principles of air competition allowing air and equal opportunity for airlines of both parties,” it states. “It has been observed by this office that this principle of fairness has not been observed by certain airlines operating to the Sri Lanka market by using predatory pricing mechanism for market dominance, thereby causing distortion in the pricing which will harm the long-term sustainability of other airlines operating into (and out of) Sri Lanka.”

“The Government of Sri Lanka is keen to stop this trend and improve the long-term sustainability of the local air transport market,” the circular continues. “In the premises aforementioned, in terms of the powers vested in the Director General of Civil Aviation under the legal provisions quoted above, all airlines are hereby instructed to file with the Civil Aviation Authority of Sri Lanka using the email address fares@caa.lk, their marketing air fares and rates for carriage of passengers and/or cargo along with applicable terms and conditions for flights originating out of Sri Lanka.

“Airlines may use their own format when filing the fares and rates,” it sates. “However, airfares/rates filed with CAASL shall contain the period of validity and be quoted in LKR. All applicable Government taxes and other surcharges shall be quoted separately. Airfares shall include fares for all classes being sold. In case of any variation in the filed airfares/rates, such variations shall be filed immediately with the Civil Aviation Authority of Sri Lanka prior to practicing. Please note that selling tickets outside the filed fares/rates is an offence.”

 It is widely known that there has been recently been significant price instability in the market. SriLankan Airlines has openly complained that it cannot compete with fares offered by Middle East airlines on the Colombo-Europe sector and will, therefore, stop flying to Frankfurt and Paris from October. 

The CAA hopes now to monitor the market. Respective bilateral air services agreements say that airlines cannot practice fares that drive competitors out of the market. The regulator can take the step of setting fares if compliance is weak but there has been no immediate decision in this regard. 

"There is no necessity for this sort of intervention if the markets are working," an industry source said. "But some intervention will happen if it is observed that undercutting is driving out competitors. It is not good for the consumer in the long run because it would allow those that edge out competition to control the market."

It is learnt that, while the CAA has not received formal representation from airlines in this regard, they have said on the airlines that it is difficult for them to maintain themselves given the cut-throat competition.