Thursday, January 8, 2015

Indonesia Disallows Rock-Bottom Pricing

Malaysia’s The Sun (January 08, 2015, p 04) reported that Indonesia had said yesterday it would stop budget airlines from selling seats at rock-bottom prices, in an effort to re-emphasize safety following the fatal QZ8501 plane crash.
All of us, I am sure, are familiar with the low, low fares that AirAsia are promoting on a very regular basis:

And this, of course, invites your competition to fight back. A price war breaks out. In 2008, in Malaysia, this is what happened.
AirAsia’s aggressive pricing made Malaysia Airlines go the “AirAsia” way, by offering FREE Seats i.e. ‘Everyday Low Fares’:
AirAsia retaliated by offering their ‘Even Lower Than 0 Fare’ promotion:

And followed this up with their FREE Seats in their ‘Sub Zero’ promotion:

Even Firefly got into the act:

What gives when you sell something at zero cost or worse, at sub-zero cost? Think about it.
Returning to the above news story, Indonesia’s Transport Ministry spokesperson Julius Barata said that the lowest ticket prices for Indonesia-based budget airlines would be set at 40% of the highest-cost fare. This took effect on December 30, 2014.
The idea behind this is to protect the public. By preventing price wars, it is hoped that airlines won't compromise on safety.
I don’t blame the Indonesians for doing what they deem is necessary – even if some people may think it is an overreaction.
Indonesia had to grapple with a poor air safety record – if you can recall, the European Union in 2007 banned all 51 Indonesian airlines from flying to the continent.
Until the Airbus A320-200 plunged into the Java Sea on that fateful day on December 28, 2014, Indonesia appeared to be shedding its notoriety for plane crashes.
Already there is speculation about lapses in safety standards.
Whether it is true or not is not as important as the affected airline going public to reassure us that that they adhere strictly to safety standards.
What is AirAsia waiting for?

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