Airlines move towards higher fares by mutual agreement in response to rising fuel costs

Published: 11/5/1999

As the fuel crisis intensifies for Russian airlines, domestic carriers are reported to be ready to raise airfares substantially, in order to cope with escalating aviation fuel costs. Pushed by declining passenger numbers, following the financial crisis of August 1998, airlines have raised airfares, but at a much slower rate than costs, particularly recently, when fuel prices have spiralled. Now the airlines concede that significant fare increases are unavoidable. According to the Moscow Times, several domestic carriers have confirmed that they intend to coordinate pricing policies, in a move to protect market share. While such price collusion is illegal, government officials say that it would be difficult to prevent. Viktor Kuskov, spokesman for the State Antitrust Committee, said that: “It is almost always impossible to prove anything”: a curious sentiment, given both the function of his agency and the willingness of the airlines to admit such agreements. Transaero spokewoman, Galina Ponomaryova, confirmed that the airline has reached an agreement with Aeroflot and two regional carriers on the routes Moscow-Irkutsk and Moscow-Nizhevartovsk. Aeroflot has announced that it is increasing prices by 30-50% on a number of routes and, in common with other Russian airlines, will cancel flights on the most unprofitable routes. The industry has retaliated against charges of price fixing by accusing the oil companies of conspiring to raise prices. However, oil industry analysts say the primary reason for the rising price of aviation fuel has been the high prices for oil products outside of Russia when compared with the domestic market, which has resulted in traders exporting for greater profit. Viktor Gorbachev, head of a trade association of Russian airport operators, called on the government to impose a ceiling on price increases on kerosene. Aeroflot is also supportive of increased state regulation of the fuel market. Fuel prices, however, are now broadly in line with external market and should stabilise according to oil industry analysts, although particular local conditions in the Far East may continue to pose problems.

Article ID: 1050