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Price caps for airlines complicated but minor issue, says CIMB Research | The Star Online

CIMB Research believes that the price caps are likely to be set quite high, because 1) a low-price cap will hurt Malaysia Airlines (MAS) and Malindo more, as their airfares are typically higher than AirAsia ‘s, and 2) it is not in the interests of Mavcom to drive MAS and Malindo out of business, since that would leave AirAsia as the de-facto monopoly which will have repercussions for the level of competition and consumer choice in the airline space.

To recap, in response to public complaints over the high price of domestic airfares during festive seasons, Mavcom initiated a study several months ago on how best to address the issue. Mavcom’s report will be presented to the Ministry of Transport (MOT) later this month.

Five issues to be looked into

Issue 1: How low will the price cap be?

The lower the price cap, the more airlines may be affected. Airlines typically apply “surge pricing” to festive periods, last minute bookings, and popular flights, e.g. Friday night flights from Singapore to KL.

Passengers who miss their flights and have to make on-the-spot bookings for the next available flight at the airport sales counter will probably be slaughtered on pricing.

Issue 2: How often do airlines breach the price cap?

If airlines do not breach the price cap often, then the impact on airlines’ weighted average pricing will not be significant.

Airlines will be prevented from applying “surge pricing” on just a handful of tickets, which will not have a material impact on the overall earnings of the airline.

Again, it all boils down to the level at which the price cap is set.

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Price caps for airlines complicated but minor issue, says CIMB Research – Business News | The Star Online.

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