Forget pricing: focus on air safety

Forget pricing: focus on air safety

Air travel is by far the safest mode of transport, statistically speaking, which is why any accident is a cause for great sorrow. But even as we mourn the loss of 162 lives on AirAsia Flight QZ8501, we have to ask some hard questions.

One has to wonder how in this day and age an aircraft that is not scheduled to fly on a particular route could actually do so, especially out of an international airport, if it is not a chartered aircraft. This is something that Indonesian authorities must deal with decisively; just suspending those responsible is not a good enough response.

It's also fair to ask how safe it is to fly in the airspace of Indonesia, or in many other emerging economies where air travel is rising at an unprecedented pace but regulations, air traffic control technology and other infrastructure are not keeping pace.

It seems that Indonesian President Joko Widodo realises the urgency of this matter and has ordered a revamp in the way the aviation industry operates in his country.

But the first fix — and many more are needed — announced by the Jakarta government has come as a shock to low-cost carriers (LCC) across the region. Indonesia has set a floor price for airfares at 40% of what national carrier Garuda Indonesia charges on the same route.

Indonesian authorities claim the rule will ensure carriers have sufficient money to invest in maintaining safety standards, but many see it as simply a knee-jerk reaction to a tragedy, and not one based on careful review of what the industry really needs.

Alarmists see the move as a potential death sentence for budget carriers, since competing on price is what the industry is all about. More level-headed types say that LCCs may enjoy better profits based on a higher price floor, assuming they can maintain or increase passenger numbers. Besides, most rock-bottom fare promotions fall far short of the minimum requirements for truth in advertising.

However, it is a fact of life that this sort of market intervention by governments is rarely good for an industry or for the overall economy.

While governments in Asia suddenly seem keen to regulate LCC pricing, the profits of the European budget pioneer RyanAir have been on the rise, as have those of some American counterparts such as Spirit Airlines. Not that AirAsia is hurting — it earned $7.6 million before tax in the third quarter last year.

But even if a price floor allows LCCs to increase profitability (which is not likely to be the case in real life), that doesn't guarantee that they will use the cash to improve safety standards of their fleets. Only resolute enforcement of safety rules — an area where Indonesia is clearly deficient — will do that.

In a country of 250 million, restricting low-fare airline tickets will only jeopardise the growing aviation and tourism industry and hurt the economy. The International Air Transport Association (IATA) has predicted that Indonesia will see 183 million new air travellers by 2034, but it may have to revise that figure as there could be less traffic in Indonesian skies.

Interestingly, Thailand and India are considering a similar price-floor policy to control the standard of low-cost airlines. Thailand has a flourishing LCC industry and the only beneficiaries from such a regulation would be the full-service but money-losing flag carrier Thai Airways, along with tour bus operators.

The aviation and tourism industries, which are expected to boom and prosper over the next 20 years, will undoubtedly suffer if there are fewer low-fare travel options available.

IATA has predicted that Asia Pacific will see an extra 1.8 billion passengers annually by 2034 for an overall market size of 2.9 billion. China alone would account for 856 million new passengers. But a price floor for air travel could be a catastrophe for aviation and tourism in the region.

Consumers who have grown accustomed to flying at affordable rates could be forced back onto buses and trains because many cannot afford the fares charged by the likes of THAI and other full-service airlines. Don't we deserve the best options when it comes to deciding which products to purchase?

In addition, I question whether price regulation is any way to ensure the safety of LCCs or any other airlines in Asean, given that the region still lacks uniform standards for air navigation or coordinating air traffic control, unlike in Europe or North America.

Given that Asean is touting a move toward "open skies" and a single aviation market this year, government meddling with market mechanisms will only increase the complications of adopting better region-wide technical and safety procedures.

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