The European Commission is considering regulating air fares in Europe in a bid to cut disproportionately high prices on many routes without competition. A heated debate is certain to develop when the Commission publishes its report in July, which will analyse the progress of liberalisation. The study will also focus on market access and new route development.

The concept of regulating fares has incurred the wrath of the Association of European Airlines. Kees Veenstra, general manager aeropolitical affairs, says: 'We're a bit fed up with the Commission's regulatory philosophies on how the market should operate in a liberalised environment.' He says the market should decide on pricing and Brussels concentrate on competition rules.

He also pours scorn on the Commission's claim that effective competition requires at least three carriers on a route. Veenstra says that only 5 per cent of routes in Europe would support 'effective' competition, which the AEA defines as a third carrier operating three daily frequencies.

A Commission official confirms 'there may be a need to adjust the regulations in terms of the level of fares,' but stresses that 'the main issue is the application of competition rules.'

An analysis by British Midland, Europe's main exponent of the 'third airline' principle, may come to the Commission's aid. The UK carrier says routes with three or more carriers have shown stronger growth and lower fares than duopolies or monopolies. BMsays the lowest business class fare on London/Heathrow-Palma is $500, compared with $1,100 on Madrid-Rome, a duopoly route of similar length.

Mark Odell

Source: Airline Business