Governments-Set Prices in Aviation

Subject: Company Analysis
Pages: 2
Words: 320
Reading time:
2 min

This issue was raised from the opinion of the Japan Airlines President. He said that US airlines are providing services below their cost on the routes between the US and Europe. As a result of this, they reap profits since the customers choose low-cost airlines. The other airlines are not able to cut the cost to below a specified limit as this might affect their profitability. As a result, domestic airlines become low-cost airlines and foreign airlines are naturally grouped as expensive airlines.

A probable solution for this problem is that the government should restrict the prices being charged by the airlines. Setting a fixed price for the airline cost is however not possible as the cost varies in different cases. An increase in cost is one of the reasons why the airlines are concentrating more on mergers with international players. Therefore, a limit should be specified for the within which the price should vary.

That is a maximum limit and also a minimum limit must be specified so that the airlines do not charge a cost below the minimum limit and more than the maximum limit. This restriction is also good to maintain and improve the competition in the industry. This decision is also not against the government’s decision to restrict the foreign players. This restriction is also beneficial to the industry in other ways. Charging very low or very high prices will always hurt the profitability of the company. When a very low price is charged the profits of the company gets affected due to low cash inflow to cover the cost.

Similarly, when very high prices are charged the profitability gets affected due to the low customer acceptance. Both are practices done by many companies to withstand the competition. However, by restricting the cost the companies are not faced with these hazardous practices.