THE COST OF AIRLINE TICKETS IS A FUNCTION OF DEMAND AND SUPPLY
July 10, 2013, By KNews, Filed Under Features / Columnists, Peeping Tom, Source
APNU has some nerve! Having cut a major chunk out of the appropriations for the air transport sector, they now have the temerity to demand that the government reduce the airline ticket tax so as to reduce the cost of airfares.
This suggestion, while well-intentioned, is ill-informed. It is premised on a misunderstanding as to the cause of the recent spike in airline tickets. But on this score, APNU has company, since the government itself is of the view that the reasons for the steep rise in airline travel is because of the predatory pricing of one airline.
Both APNU and the government need to avail themselves of the facts about airline ticket pricing. It is no longer a case of one price per seat. Seats today are sold in blocks. And since the demand for seats is more than the supply, it means that the forces of demand and supply are going to push up airline fares so long as airline tickets are sold under this type of system.
If you book early you get a base price for a seat, but for every block of seats sold afterwards, the price increases, because there is great demand for the limited available seats. This is why ticket prices are soaring through the roof at the moment.
If you wish to travel in December you can get a bargain if you book today. But if you wait until November, not only will the price be prohibitive, you may not get a seat. This would tend to suggest that with additional airlines prices will taper downwards. Not necessarily so!
The new airlines that are supposed to come on board are not likely to cause fares to go into freefall. Airlines have to cover their fixed operating costs. These costs are high and this means that the base price per flight is high.
Airlines cannot afford to have a great many empty seats per flight. Profits are derived from the volume of head traffic, not the number of flights, and therefore margins for each flights are razor-thin, just like the opposition’s majority in the National Assembly.
As such, even if additional airlines are licenced they are not likely to offer flights that depart without a full load, because to do so would mean losses on each flight. What this means is that there will always be competition for seats on flights, and once this happens, persons who book late will have to pay high prices.
Reducing the ticket tax will not alleviate the problem. (The opposition has no authority to reduce taxes). Reducing the tax will encourage more persons to contemplate traveling, which in turn, will boost demand and thus lead to a return of the cycle of high prices.
To reduce fares, what is needed is a reduced unit cost per head per flight. And for this to happen, larger aircraft are needed.
But for large aircraft to land at the Cheddi Jagan International Airport there has to be a lengthening of the runway at Timehri. But do not tell that to the opposition. They have cut the provisions for that project from the Budget, even though APNU has admitted to lacking the technical expertise to evaluate major projects.
That confession was not surprising. After all, despite being provided with all the information it needed, the main opposition took months to reconcile the statements of poll of a mere 2000 polling stations.
The situation is not helped by some of the independent analyses that are offered about the airport project. Much of those analyses leave much to be desired.
One such analysis concentrated on the price of toilet bowls and the limited bathrooms provided, as if what was being constructed is a sauna rather than a state-of-the-art international airport. These “toilet- bowl” analyses need to be flushed down the drainpipe.
There are obviously limited credible sources available to the opposition to arrive at sound evaluations of projects. The AFC, for example, has said that it is awaiting the analysis of the IDB before it makes a decision about another major project.
This is the same party which in the run-up to the elections had highly- lettered individuals offering advice and analysis about the economy of Guyana. Yet they now are awaiting the opinion of the IDB, instead of parading the talent which they were hoping to call on to administer the country had they won the elections.
If the Guyana government had bothered with the IDB, the Berbice River Bridge would never have been constructed. Financial institutions like the IDB are no doubt worried about the money that China is offering the region. These loans are enticing and will result in countries moving away from multilateral financing. The IDB can be bypassed in preference for loans from China, India and Brazil.
So how with this obvious conflict of interest can any serious political party be awaiting the verdict of the IDB before making a decision about a major project?
While the AFC is waiting, the prices of air transport tickets are rising and the window of opportunity for a larger airport and hydropower is being slowly closed.
