Price Competition

A declining trend in air fares is generally good for consumers and airports alike, but not so good for airline finances, at least in the short term. Yet the dynamic nature of the market means that such generalizations are only partly true. On the one hand, competition keeps everybody fit and lean, and lets you do well in your own league. On the other hand, variety and continuity of services are especially important for the industry.

In the two previous years, air fares in fact rose exorbitantly in Finland, and this trend and its consequences, especially in the low-competition domestic sector, came to a head in 2003. This trend now seems to have sprung back, in fact back and forth, with interest. Consumers may have gained a slightly distorted picture of what a financially sustainable price level might actually be and where the trend might lead in the long run, amid all the competition and structural changes.

Certainly the domestic long-haul public transport market needs invigorating, underpinned by equitable and market-led competitive structures to avoid financial distortions. Such structures mean more than Review by the Director General 2 simply airlines “wrestling” with one another – in this respect the external playing field is even – but they are also important in relation to operators of other modes of transport. Airline passengers are the only users of public transport who pay for the traffic lanes they use through their air tickets, whereas users of other forms of transport get a free ride from the state. Yet airport customers may be the only ones who are satisfied by the quality of the infrastructure they use. A balance is struck when customers get what they pay for and pay for what they order. A recommended solution for other means of transport. Regional policy is of course another matter entirely.

When the new low-cost airlines enter the market for a short time and in particular for the long term, this also has a dynamic effect on the industry. This is not simply a question of price competition – where usually the biggest wins – but also a genuine impetus towards lower costs for the entire air transport service chain, including the airports.