Reform of Price Regulation of Domestic Passenger Air Services in China Breaking Down Non-tariff Barriers to Trade in the Transport Sector Case Study Presented by P. R. China May 22, 2006, Hanoi, Vietnam

Overview of the Reform Process of Price Regulation on Domestic Passenger Air Services (1) Before 1992 Strict regulation: the government directly specified the price Began to ease control: airlines were allowed to offer 10% discounts.

Overview of the Reform Process of Price Regulation on Domestic Passenger Air Services (2) Trial reform : airlines were allowed to discount down to 40% Strict regulation again Reasons: the whole industry suffered losses

Overview of the Reform Process of Price Regulation on Domestic Passenger Air Services (3) 2004-present New reform: towards a more flexible price regulation system

Main Contents of the New Reform (1) Different Routes have different prices 1. Tourist routes or exclusively operated routes-----setting a price ceiling 2. Short haul routes within a province----- completely determined by the market

Main Contents of the New Reform (2) 3. Other routes----prices floating between a certain range, I.e., 45% below and 25% above the base rate

Reasons for Policy Change Fast growth of China ’ s air transport market The role of the CAAC has changed Encourage airlines to compete Develop underserved markets

How the reform conducted Organizer: General Administration of Civil Aviation of China (CAAC) and State Development and Reform Commission (SDRC) Procedure Public hearing

How the transport sector responded to the changes Airlines: began to use revenue management system Passengers: more choices for air services products

Benefits of the New Reform The aviation industry Airlines Consumers

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