Buckle up your wallets: Russia may introduce a price ceiling on airfares
All domestic air carriers are obliged by September 2025 to have an internal document that justifies their fare policy. Its absence will be considered a violation. At the moment, the antimonopoly regulator is studying the commercial policies of 15 airlines, including Pobeda, Aeroflot, Ural Airlines, NordWind, Smartavia, UTair and a number of others. The Center for Strategic Developments in Transport expects that the innovation will become a tool for future objective control by the FAS. Specialists in civil air transportation note that excessive restrictions can reduce the inflow of investment in infrastructure development and in ensuring control over the technical condition of the air fleet, so the solutions must be balanced. The details are in the Izvestia article.
Why do they want to regulate airlines' policies?
All Russian airlines should form by September 2025 price policies. This was announced at a round table in the Federation Council by Veronika Khodyreva, Director of the Department of State Policy in the field of civil aviation of the Ministry of Transport of the Russian Federation (Izvestia has the press release). The absence of such a document will be considered a violation of the order.
As the press service of the FAS of Russia told Izvestia, the antimonopoly service and the Ministry of Transport sent a joint letter to airlines with recommendations on the formation of the main provisions of commercial policies of carriers. Aeroflot and Siberia Airlines have already declared that the share of ticket sales below the economically justified fare will be at least 60%, and the share of tickets sold at the maximum fare will be less than 2.5%. In addition, each of the airlines has included in its commercial policy "proactive preferential programs" for certain categories of citizens.
The FAS agreed with the submitted documents. The agency expects that other Russian companies should follow the example of their colleagues.
"Izvestia sent inquiries to the Ministry of Transportation and Rosaviatsia, the Ministry of Transportation's OS, the Association of Air Transport Operators (AEVT), as well as UTair, Ural Airlines, and a number of others.
According to the data cited in "Popular Front. Analytics", this year the growth in the cost of airline tickets amounted to about 17%.
Companies will have to remove suspicions of high fares
The ceiling of airfare prices by these commercial policies is not yet normatively limited. There is a discussion that it is advisable to determine an economically justified fare, against which the overall profitability of a flight will be analyzed. It should be taken into account that in case of dynamic pricing, part of the tickets when purchased in advance may be lower than this tariff, and part when purchased closer to the flight date - higher than the tariff, explained Anton Koren, Director General of the Center for Strategic Development in Transport, to Izvestia.
- The expected result from the introduction of commercial policies is more moderate pricing of airlines in monopoly markets due to the transparency of control over pricing. This, in fact, solves the issue of more affordable air travel, - comments the expert.
Now the greatest social effect from the introduction of commercial policies is achieved on non-subsidized domestic airlines with the monopoly position of one carrier on the line. They will have the least impact on international airlines (there is usually competition there), as well as in the subsidized regional segment - fare limits are set by the rules of subsidies allocation, Anton Koren said.
Sergey Katyrin, President of the Chamber of Commerce and Industry of the Russian Federation, suggests that the new mechanism can be implemented through the establishment of price ceilings for certain categories of tickets or for certain destinations.
- On the one hand, the price ceiling may lead to a decrease in airlines' revenues, which will affect their ability to invest in infrastructure development and improve the quality of service," continues the head of the Chamber. - On the other hand, competition between airlines may encourage them to look for new ways to improve efficiency and service quality.
- Of course, if there were 3-4 independent companies operating in the country on each direction, we could let the situation go a bit and expect the market to solve everything on its own, - says Valery Alekseev, head of the Investigation Bureau of the Popular Front. - But the limited supply of aircraft, the shortage of labor, and rising maintenance costs all make the situation difficult. In many areas there is virtually no competition, as well as no other way to quickly get from one city to another. In such a case, there is a temptation to use a monopoly position, he notes.
Will it be possible to build an analog of the price ceiling?
Andrei Patrakov, General Director of Ranavia LLC, hopes that there will be no ceiling on airfares. At best, such an artificial restriction can restrain the growth of prices only in the short term, the expert believes. But in the medium term, almost any mechanism to limit the cost in market conditions will lead to a deficit, and in the long term - to the withdrawal of business from the market.
- In the conditions of growing capacity shortage due to reduction of airplane fleet, introduction of price ceiling will only aggravate the already difficult situation in this market, - says Andrei Patrakov. - Airlines have already been trying to save money on everything for the last two or three years. By the example of Aeroflot's savings on key personnel, this has already led to a series of scandals with flight attendants and pilots. And this has a negative impact not only on passenger service standards, but above all on flight safety.
Leonid Gunkevich, co-chairman of the Tourism Committee of Business Russia, believes that the new mechanism will be a dynamic system, but it should be taken into account that excessive restrictions may hit the industry. Too low fixed tariffs will reduce profitability and jeopardize maintenance, aircraft renewal and infrastructure development, agrees Gunkevich.
Oleg Panteleyev, head of Aviaport agency, believes that the forthcoming innovations will somewhat complicate the life of airlines, but it will not affect the affordability of transportation.
- The work is already going in this direction: airlines form their commercial policy, which explains what, how, why and under what conditions they do," says the analyst. - FAS approves this policy. At the same time, the companies do not make any rigid commitments that tickets cannot cost more than a specific value.
What is the benefit of dynamic pricing
Sergei Orlov, Director of the Kurgan branch of the Institute of Economics of the Ural Branch of the Russian Academy of Sciences, points out that in case of expansion of state budget subsidies, the price level for flights, depending on the amount of subsidies allocated to a particular route, can be set at any level acceptable to passengers.
At present, he continues, in the absence of state subsidies, the introduction of an absolute price ceiling cannot be realized, because the costs of air transportation in modern conditions are constantly growing.
- Companies will be forced to increase the differentiation of prices for flights between preferential fares and economy class tickets on the one hand and tickets sold at a price close to their marginal cost on the other," says the expert.
Thus, he elaborates, in order to provide benefits to the relevant categories of passengers (for example, children from 2 to 12 years old), transportation companies are forced to increase cross-subsidization of the cost of flights at the expense of more expensive tickets. The economist emphasizes that it is possible to achieve a reduction in the marginal cost of flights only through the mechanism of state budget subsidization of specific routes.
Ilya Shatilin, civil aviation expert and FrequentFlyers CEO, believes that if a price ceiling is introduced, "60% of cheap tickets will be sold above cost, airplanes will fly half-empty, and the number of flights will have to be reduced. If unprofitable tickets are compensated at the expense of the state, there will be a problem of inability to buy tickets for the necessary dates, and airline offices will have to be besieged, comments Shatilin.
Kirill Yankov, Chairman of the Passengers Union, believes that the new rules will not affect the standards of aviation service and infrastructure. This may rather affect fare formation for passengers, for example, it will become less "dynamic" and a little more stable, i.e. fares for the same flight will change less frequently during the sale period than now, the expert concluded.
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