Because the ceiling on flight prices is wrong
Reasoned criticism of the government decree on airline tickets. The intervention of Lorenzo Gerosa
Summer: time for air travel and seasonal controversy over overbooking and expensive tickets. There is something new this year. Given "the extraordinary need and urgency to adopt measures to protect users of air transport services, who, due to the exponential increase in tariffs, are unable, in periods of peak demand, to use territorial continuity services" , in the last Law Decree , among the various measures, the government has decided in article 1 to put a hand on prices in a sector – air transport, in fact – which by its very nature goes beyond national borders and for a long time now , due to the economic and strategic importance of the interests at stake, has a global connotation, a term that seems to cause hives every time to the sovereigns of our house.
WHAT WRONG WITH THE GOVERNMENT DECREE ON FLIGHT PRICES
Only by stopping at the first paragraph of the decree do two considerations emerge: one of a temporal nature and the other of logic.
The first is that today it is difficult to glimpse the extraordinary need and urgency when by August all potential consumers of air transport must have already booked and paid for their holiday flight and if they have not yet done so, it will be difficult for them to find a place and if not at cheap prices. Classic case of closing the stable after the oxen have escaped.
The second, on the other hand, is a clear contradiction in terms, given that it is precisely at a time of peak demand that prices tend to rise also to compensate, especially in cases of territorial continuity, for the low occupancy of aircraft with a consequent reduction in prices in low season, in jargon yield management or yield management.
In simple words, for the airline every single seat on a flight left empty is like a yogurt that has to be thrown away after its expiry date and has no more value.
These policies were not born today and current air transport is the result of decades of market evolution which began in the second half of the 1980s with deregulation in the USA and – much more important for us European consumers – with the Nouvelles Frontières ruling , when the Court of Justice effectively extended the competition rules applicable to other sectors to the air and sea transport sector as well.
THE LIBERALIZATION OF AIR TRANSPORT
The sentence represented one of the pillars that led to the liberalization of this sector, which is fundamental for the creation of the single market. Until then, considering that the sky is the vertical expression of national sovereignty, overflights, technical stopovers, landings with goods and passengers disembarking in another state were regulated by specific agreements and flag carriers were seen as an extension of the country like the Azzurri, the Frecce Tricolori or Ferrari.
This context entailed a protectionist market situation where in internal routes a reserve was allowed for the benefit of the flag carriers and their subsidiaries (such as ATI to understand) and in international connections the routes were instead regulated by bilateral agreements between the States aimed at distributing the traffic between their national companies with above all the validation of the tariffs by the two governments involved.
All this was swept away not without resistance and difficulty over the ten years from 1983 to 1992 with the complete liberalization of tariffs, the elimination of any restriction on the determination of operational capacity and total freedom of access to routes for all European carriers with the freedom of cabotage within the Member States.
The birth and development of Low Costs is one of the consequences of this evolution of the market and those who have not adapted have disappeared from the radar despite various attempts at national bailouts. The story of Alitalia is emblematic in this case where over the years governments of different colors have tried to save a company precisely in the name of being Italian instead of investing in a model that was more responsive to the new needs of the market.
This liberalization process with a policy of free pricing has therefore led all airlines to use techniques to optimize the filling of each flight through correct pricing to attract customers. Certainly technology helps airlines but also the consumer, just think of fare comparators to find the best offer on the market.
THE ANACHRONISTIC MOVE OF THE GOVERNMENT
Unless any form of cartel or customer profiling can be demonstrated, then think back to the 1980s where a government can impose a tariff policy prohibiting “ the dynamic setting of tariffs by airlines modulated in relation to the time of the booking", appears not only anachronistic but potentially harmful precisely for the consumers they would like to protect, perhaps introducing the concept of average price which makes little sense when there are many factors that contribute to forming the rate and where in the end precisely those customers would be penalized who have to fly in the off-season to get back to their families on the islands instead of going on vacation.
In fact, it is very probable that these rules, regardless of the problems of compatibility with Community legislation, will not have the effect of reducing prices, given that – as stated by Ryanair CEO Eddie Wilson – "to lower prices it is necessary to increase capacity, i.e. increasing the places available. The people who are advising Urso know nothing of the aviation sector, they know nothing of the economy". Difficult to blame him and if he were to reduce Ryanair's commitment in Italy it would add insult to injury.
Of course, after those of happy degrowth we only needed the sovereign directors to destroy a toy built over many years with a long and complex process that has led millions of people to be able to take advantage of air transport previously closed to a large part of consumers.
By now the government with these measures, of which the one on air transport is only one component, is increasingly reminiscent of the tale of the frog and the scorpion: it is in their nature to be like this and despite an encouraging start on an international level probably to gain credit with our allies are now showing themselves for what they are, dirigiste and hostile to competition and the market.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/smartcity/tetto-prezzi-voli-perche-e-sbagliato/ on Fri, 11 Aug 2023 11:21:03 +0000.