Fed Govt Orders Domestic Airlines To Reverse 60% Airfare Hike

March 3, 2022 Mary

Fed Govt Orders Domestic Airlines To Reverse 60% Airfare Hike

The Federal Government on Wednesday ordered domestic airlines to reverse the recent over 60 per cent hike in airfares on domestic routes.

It gave the order after investigations by the Federal Competition and Consumer Protection Commission showed that the airlines might have unanimously agreed on airfares hike during meetings by the Airlines Operators of Nigeria, their umbrella body.

The Executive Vice Chairman/Chief Executive, FCCPC, Babatunde Irukera, said in a statement issued in Abuja that it was wrong for competitors to come together and agree to fix price, but stressed that investigations were still going on.

He said, “Although the investigation is at early stages, there is sufficient probable cause to proceed and also provide interim measures to restore a free and undistorted domestic aviation market.

“In the circumstances, the commission is in addition to engaging the relevant stakeholders entering and dispatching interim orders under Sections 17(a),(e),(l),(s),18(3)(a), 157 and 158 of the FCCPA prohibiting the performance or continuation of any agreement or arrangement associated with, or resulting from discussions, deliberations, debates, argument or resolutions of/at any meeting of the AON or its members regarding any increase in air fares and or any conduct not necessarily directly in compliance, but in response to changes in the market on account of a compliance by others.”

The FCCPC enjoined “scheduled domestic airline operators to ensure strict and prompt compliance with the interim order pending outcome of the commission’s investigation.”

The commission explained that on Sunday, February 20, 2022, it became aware that domestic airlines purportedly under the aegis of AON, after a series of meetings over a period of three weeks, including the ones on February 17, 2022 and February 19, 2022, discussed multiple industry-wide issues, particularly challenges experienced by AON members.

It said findings showed that some subjects of the discussions included foreign exchange, cost of ground handling services, rising cost of jet fuel and airfares.

“The commission’s preliminary investigation discloses the meeting dates of AON to have been on or about February 8, February 17 and February 23, 2022,” Irukera said.

He added, “The investigation also confirms that one of the items of discussion during at least one of those meetings was to set base or minimum airfares.

“The commission’s understanding from intelligence so far gathered is that there was significant controversy and or an initial lack of consensus with respect to coordinated conduct resulting in setting airfares.

“The commission also has credible information that while attendees at the meeting may not have arrived at a consensus, the meeting ended in a resolution that encouraged, permitted or consented to the coordinated conduct.”

The FCCPC boss said the commission’s understanding from the deliberations at the meeting was that the attendees engaged in mutual discussions and exchange of their respective revenue management models or other commercially sensitive information.

“In furtherance of the discussions and or resolution at the meeting, certain champions of the coordinated conduct of imposing a base fare or a Minimum Re-Sale Price for their services in a coordinated and contemporaneous manner proceeded to increase their fares to a minimum of N50,000 across all sectors,” he said.

Irukera added, “Specifically, Air Peace, Azman Air and United Nigeria Airlines immediately proceeded with the increase. Arik followed.

“However, on Friday, February 18, 2022 at 6:31 p.m. Aero Contractors informed its trade partners (travel agents) and its commercial executive team by email that ticket fares were reviewed effective February 18, 2022 with the least fare being N50,000 across all routes.

“Aero Contractors noted in this communication that all other airlines have effected same increase.”

The FCCPC stated that within days, Max Air also increased fares to the same minimum N50,000, adding that Ibom Air and Dana approximately 48 hours after what appears to be the initial coordinated conduct, also increased fares although not to the purported N50,000 minimum.

It said Green Africa Airlines maintained its existing fares between N33,000 and N38,650 but had progressively increased its fares rising to approximately N47,000 on its Lagos-Abuja route on Wednesday, February 23, 2022.

“The FCCPA prohibits conduct or any coordination between competitors including on the platform of trade associations,” the commission stated.

It added, “Specifically, Section 107 (1)(a) forbids competitors from fixing prices, and Section 108 prohibits any conspiracy, combination, agreement or arrangement between competitors in any manner that unduly restrains or injures competition. Coordination in increasing prices (otherwise known as cartel) is an unambiguous infringement of the FCCPA.

“Further, the current and prevailing Nigerian Civil Aviation Regulations (Air Transport Economic Regulations) in Regulation 18.15.2 (i) and (iii) expressly prohibits airlines from engaging in any contract, arrangement, understanding, conspiracy or combination in restraint of competition which includes directly or indirectly fixing a charge, fee, rate, fare or tariff and any collusive action.”

The commission stated that the FCCPA, Civil Aviation Act and implementing regulations of both legislations respect the right and prerogative of airlines (as other businesses) to set their fares independently subject to, and in accordance with prevailing law and applicable processes.

“However, prevailing law expressly prohibits coordination, agreement or cooperation between competitors in setting fares,” it stated.

The FCCPC added, “As such, the commission with the collaboration of the Nigerian Civil Aviation Authority has commenced an investigation with respect to this subject.”