Airlines warn that a proposed law to regulate air fares would reduce travel options; Lan says it might pull out of Ecuador if it passes

May 19, 2015 | 4 comments

Legislation that would fix the prices for domestic air travel is being attacked the country’s airlines as unnecessary intervention into a market system that provides choices to travelers.

Lan Airlines said it would consider ending domestic air service if proposed legislation passes.

Lan Airlines said it would consider ending domestic Ecuador service if proposed legislation passes.

A bill introduced into the National Assembly by Cuenca assemblyman Oswaldo Larriva would establish fixed costs for passenger service and cargo transport. “Currently, the costs are entirely at the discretion of the airlines and they fluctuate at the whim of the airlines,” Larriva says.

He cites the cases of last-minute ticket purchases as the reason why regulation is needed. “If you have to purchase a ticket the day you travel, it can cost you $320 for a round trip from Cuenca to Quito,” he says. “The guy sitting next to you, who was able to buy his ticket two weeks ahead, may only pay $90. What my legislation proposes are airline ticket prices that are equal for all travelers.”

Larriva says air transport is a public service and setting prices is in the national interest.

The airlines say the proposed law is an effort to fix a system that isn’t broken. “The market is working fine,” said a spokesman for Lan Ecuador, which operates 32% of the passenger air service in the country. “This law would place unrealistic controls on our operations and could force us to leave the Ecuador domestic market.”

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Tame Airlines manager Raul Fierro says regulation would damage the market balance. “Having the ability to adjust fares allows us to maintain a healthy balance between demand and our ability to respond to it,” he said. “If prices are set, airlines lose the incentive to maintain an efficient system.”

Without the incentives, Fierro says that airlines would cut back on employment and customer service.

Tame serves 51% of Ecuador’s domestic market.

Ecuador’s Association of Airline Representatives says it is analyzing the implications of proposed law but says it has serious concerns. Association spokeswoman Patricia Minho says that currently, passengers have the option to choose the product that fits their needs in terms of service, schedules, and routes, and allows them to take advantage of special promotions when they book in advance. “This creates healthy competition that provides the incentive to carriers to provide good service and to maintain aircraft and other equipment,” she says.

She also said that the elimination of special low-cost promotions would hurt tourism.

 

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