A regulator’s view

Abstract

The current debate on the level of air fares must at the moment look more than usually odd to people outside the industry, and indeed to many people within it. The prospectus for this seminar refers to current accusations that the travelling public is being ‘ripped off and to comparisons between Europe and the USA. Yet we have only to look at the classified advertisements in the evening newspaper to see that we can buy a week’s inclusive tour to Majorca in early December for £60. The airlines tell us not only that they are making losses in Europe, but that even in good years profitability is never more than modest. They point to the high level of costs in Europe relative to the USA — the price of fuel, airport charges, the indirectness of many European routeings, the costs of a multi-country operation and to the more favourable operating conditions in the US, particularly the route density, the long sector distances and the greater flexibility in the hiring, firing and use of labour. The present period of recession, with its combination of high inflation and weak demand is making life even more difficult. Yet users call for lower fares in Europe and the CAA and the Department of Trade are also identified with the cause. What is going on?