Following Comair’s liquidation, domestic air travellers should prepare themselves for a sharp increase in the price of airline tickets as South Africa loses 40% of its domestic airline capacity.
Airlines operate on what is called ‘dynamic seat pricing or yield management and they structure their prices according to the demand’, SA Flyer editor Guy Leitch told Moneyweb.
‘So that’s going to force the prices up a huge amount and on top of that, we’ve had enormous price increases because of the fuel price increases, so although there’s going to be a removal of 40% of the supply, the demand is virtually going to drop off while a new equilibrium is established,’ he added.
Airline prices to be monitored
Following Comair’s liquidation announcement, the Competition Commission held meetings with FlySafair, Lift, Airlink and SAA to discuss possible price gouging, or raising prices an unreasonable or unfair amount after a demand or supply shock.
The commission warned that it would monitor airline prices and investigate if fares became suspiciously high. FlySafair was one of the airlines accused of price gouging following the grounding of Comair when its operating licence was suspended in March.
FlySafair CEO Kirby Gordon said ‘we are price takers … so pricing is always as a result of supply and demand forces in the market and when one [is] approached with a situation like we are at the moment where supply is being constrained relative to the demand that is out there, we are going to see increases in prices, that is only natural’.
Following the meeting with the Competition Commission, airlines agreed not to change their pricing methodologies to exploit the situation and to bring more capacity to the market. Rising prices are still expected in the short term, however, especially when coupled with increasing fuel costs.
Picture: Getaway Gallery
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