Homecoming Price: Is UIA Taking Advantage of the Situation?

March 2020

– Vitalii Vlasiuk

On March 13, President of Ukraine Volodymyr Zelenskii put into effect the decision of the National Security and Defense Council of Ukraine, according to which the closure of Ukraine’s external borders was scheduled for two weeks from March 17. As a result, demand for flights to Ukraine has sharply increased, in particular for flights of the largest national air carrier, Ukraine International Airlines (UIA). What has angered the Ukrainians and what it looks like from a legal point of view?

1. Nobody likes to feel like cornered

Social networks are full of indignant Ukrainians who (1) are eager to return to Ukraine as soon as possible and (2) are faced with expensive UIA tickets. “Expensive” refers to the unexpectedly high price of tickets compared to the usual for these destinations at this time of year. A cursory look at hundreds of outrageous posts suggests that instead of the usual 200-300 euros, the price of UIA tickets has sharply reached 700 or more. Naturally, people feel angry and blame the UIA for “monopoly abuse” and “misery.” Below, let’s try to prove if such judgments are true.

2. How do airlines form the price fares?

Not trying to justify anyone in any way here, but it is important to understand the process of composition of a ticket price.

First, each airline has essentially its own unique formula of automatic (NOT “manual”) pricing that takes into account a huge variety of factors. Secondly,  the demand is, and always will be, a major factor. In fact, is anyone surprised by the high price of tickets for the Christmas period, for all directions without exception? Or charter prices for Egypt and Turkey increasing on May holidays, which is still common practice to the former USSR countries?

It’s no secret that airlines usually start selling a particular flight at a lower price, which increases as the airplane fills. This is why tickets a day or two before departure almost always cost more than those purchased a month ago.

In fact, on March 15, UIA officially confirmed that it continues to make automatic pricing.

In any case, as of now, no state of emergency has been introduced in Ukraine, nor has legislation been adopted that can directly influence the pricing of products or services of private companies. Until then, government interference with companies is fortunately not allowed.

3. In fact, can UIA be considered a monopolist?

This may sound sensational, but from the point of view of Ukrainian legislation, UIA cannot be considered a monopolist. Yes, even though it transports about 6 out of 10 passengers.

The point is that aviation (as well as rail) has its own unique regulation, largely built on interstate bilateral and multilateral agreements. For example, Ukraine and Turkey recently agreed to operate 24 flights to Kiev-Istanbul a week.

In addition, in the case of aviation (as well as rail), monopolization does not consider the market as such, but individual routes of point to point. Most of the routes have a UIA competitor, but even if they don’t, you can barely blame UIA – it is simply that no one else flies there. There is no need to talk about connecting flights, because large hubs offer many options.

This approach is the same for other countries: the major “national” carriers are dominant, but they are not monopolists: neither Lufthansa in Germany nor KLM in the Netherlands.

Another important factor is the Open Skies Agreement, which Ukraine has been trying to join for many years. I wrote in a separate article why this is important and disturbing back in 2015, so let me just briefly remind you that the agreed text of the Agreement was never signed because of the territorial dispute between Spain and the United Kingdom over Gibraltar.

The dispute has not yet been resolved, but the UK is no longer an EU member. Consequently, Gibraltar airport can still be excluded from the text of the Agreement, so it can finally be signed. There is every reason to expect that this will happen by the end of 2020. The agreement itself, I emphasize, means, in fact, a common sky for all states parties.

4. Okay, is it then fair to accuse UIA of “monopoly abuse”?

As it has been proven above, UIA is not a monopolist, even if it operates more than half of flights in Ukraine.

Nevertheless, let’s have a look at the relevant definition from the law (Article 13 of the Law of Ukraine “On Protection of Economic Competition”):

Abuse of monopoly (dominant) position in the market, in particular, recognizes:

1) establishing prices or other conditions for the purchase or sale of goods that would not have been possible to establish if there was significant competition on the market;
2) the application of different prices or different conditions to equivalent agreements with entities, sellers or buyers without objectively justified reasons;

And neither of these two points is suitable, as the competition of air carriers on routes has not been eliminated by the virus, and different prices are not offered to citizens – all are high, but the same.

Well, to be fair, I did not conduct an economic study on the pricing of other airlines for flights to Ukraine between March 13-17. News, including from social networks, is controversial: someone says that prices have risen sharply only at UIA, someone admits that other competitors have done the same. It seems to be true in the middle, but let the Antimonopoly Committee of Ukraine check it.

5. Can the Antimonopoly Committee of Ukraine really affect the situation?

Again, it will sound sensational, but the latest statement by the Head of the AMCU Department in Kiev region looks nothing more than a political demonstration of the authorities’ concern for citizens. Which has nothing to do with the reality, at least because 1) UIA is not a monopolist and 2) does not commit any abuse, at least in part of pricing.
Moreover, let me remind that the normal period of investigation by the antitrust authorities of Ukraine may continue for months and is impossible without receiving a number of information and documents from, in fact, the subject of investigation. Companies also have months for this. So I will say two important things: first, the current situation of the AMCU will not be affected in any way. Secondly, it is a deliberate deception of the population, because it will not end with anything, unless the fact of conspiracy of ALL air carriers to raise the price of air tickets will be established. Which is unlikely.

Finally, I wish the Ukrainians good health and more bright travel with the airline you prefer. Of course, after the coronavirus is dismissed.

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