Bid to shoot down sky-high air fares

Date: 17/10/1996

By Chris Johnstone

TRANSPORT Commissioner Neil Kinnock will later this month ask his colleagues to support the revival of a little-used measure to attack overpriced air fares.

The move reflects Kinnock's determination to get tough on airlines which persist in charging sky-high prices, in a bid to speed up and spread the benefits of air-travel liberalisation.

In his report on the successes and failures of the EU's third airline liberalisation package, which is due to be discussed by the full Commission before the end of this month, he will ask for agreement from his colleagues to use an existing regulation designed to counter excessive fares.

Kinnock hopes that the mere threat will encourage airlines to bring down their tariffs.

“Mention that the Commission is willing to use this should concentrate minds wonderfully,” said one official this week.

The procedure allows the Commission to force airlines deemed to be overcharging to bring their fares down to what it considers to be an acceptable level.

The current regulations were introduced in January 1993, replacing a similar law which came into force in 1990.

The previous measure was used once, amidst much outcry, to highlight prices set by British Airways, Alitalia, Luxair, and Iberia which the Commission regarded as too expensive and out of proportion to their costs.

But the current regulations have been shunned until now, for being too cumbersome.

In order to apply them, Commission officials must first work out the exact costs of every journey being targeted and then decide whether the final price is out of all proportion to a reasonable profit.

“It is cumbersome, but it can be used,” said one.

Officials make no secret of the fact that the revived measure could be used to tackle what they regard as persistently high fares on routes within Scandinavia and between Scandinavian countries and the rest of Europe.

Scandinavian Airlines System (SAS) - the flag carrier for Norway, Denmark, and Sweden - has faced little competition on its home patch. On most European flights it shares the route with another flag-carrier which has no interest in sparking a price war.

Commission officials concede that however often the regulation is used in the future, it cannot be a substitute for real competition. On routes where at least three airlines are competing for passengers, cosy arrangements between rivals on capacity and fares become difficult to operate.

They are therefore pinning hopes on Richard Branson's cheap, no-frills Virgin Express spreading its operations to Sweden and Finland, following the launch of its flights between Brussels and Copenhagen last month.

SAS halved the price of its cheapest Saturday stop-over Super Apex fare between Brussels and Copenhagen in anticipation of the start up of Virgin's rival operations in early September.

The airline defends itself against criticism of its fares by pointing to the high prices charged by most of its rivals.

Overall, Kinnock's report on liberalisation records patchy progress in boosting airline competition across Europe.

It shows that new entrant airlines face severe problems in starting services, particularly because they lack take-off and landing slots at key airports - rights which established airlines fight tooth and nail to hold on to.

The slots shortage is to be tackled in a Commission review of its rules on slot ownership and exchange which is already under way.

The report concludes that airline liberalisation is already having a positive effect on fares, but Kinnock's call for tougher action reflects concern that this is not happening fast enough.