BANGKOK: Reducing airline ticket prices to stay ahead of the competition could cause more harm than good if airlines are not careful.
According to the Bangkok Post, while most passengers would be willing to opt for cheap flights, the past few years have not been kind to commercial airlines.
This is partly due to the ongoing trade war between China and the United States, and also the global economic recession.
Numerous airlines have felt the pressure, which has forced them to slash prices in an attempt to win over more customers as competition between them escalates.
Competition, however, can be constructive for airlines, if carefully designed and formulated.
If not, the race to offer lower fares could intensify into price wars which could see airlines slide into dangerous territory, according to a Bangkok-based aviation expert.
The fare competition could mean reduced profit margins unless an airline is able to exceed its targets in filling the seats on a given flight.
There is a limit to how low the fares can go, even for low-cost carriers which sell a limited number of seats at “ultra-cheap prices” on each flight.
A report by the International Air Transport Association (IATA) this month said the running cost for airlines has fallen due to lower fuel prices.
Balancing this with the sector’s slow revenue growth, however, will be a challenge.
According to the IATA, consumers will see a substantial increase in the value they derive from air transport next year including stability in ticket prices, after allowing for inflation.
For Thailand-based airlines, fare competition is an area in which they must tread carefully.
Budget carrier Nok Air has announced that it will not open new international routes to popular destinations to avoid price wars with other airlines.
Chief executive officer of Thai AirAsia, Santisuk Klongchaiya, agreed that competition within the aviation industry is in high gear, which makes adjusting ticket fares to augment revenue a matter which should be carefully considered.
For this year, fares for Thai Air-Asia domestic flights achieved a 5.0 per cent growth, while fares for international flights would be dependent on the value of the baht.
“Regardless, lowering prices to stay competitive may not be the best solution at this time” he said.
The airline is focusing on efficiently managing capital alongside developing service quality and maintaining punctuality, safety, and a variety of routes and flights to correspond to passenger demand.
AirAsia has implemented policy and commercial measures to make capital management more adaptive and expand revenue streams, and has recently joined other carriers in proposing to the Finance Ministry a reduction of fuel duties for domestic flights in aid of businesses operating at a loss.