Fares for flying out of Austria are set to rise. And at least one airline is happy with the news. The Austrian government is set to implement new fare minimums and taxes associated with travel as part of negotiations with Austrian Airlines and Lufthansa Group on a government led bailout of the country’s flag carrier. In negotiating conditions of a 450 million euro cash infusion Lufthansa Group appears to have secured a commitment to a 40 euro minimum fare and a surcharge for flights shorter than 350 kilometers.
It’s good to end things that just don’t make sense, such as tickets that are too cheap. It doesn’t make sense ecologically or economically. In that respect I can imagine implementing these measures in other European locations.– Lufthansa CEO Carsten Spohr quoted in Bloomberg
In addition to a minimum fare requirement the government will also tack on an additional surcharge for flights shorter than 350 kilometers (~220 miles). This move echoes a similar effort in France, where Air France agreed to stop selling point-to-point flights in markets served by high speed trains in under 2.5 hours. It turns out that’s only five markets for the company, however.
The minimum fare requirement includes all taxes and fees. With the short hop surcharge the rules effective make selling those tickets economically unreasonable in many markets. Connections to hubs will remain for long-haul service while other trips will likely shift to trains. The Lufthansa Group also agreed to maintain a hub operation in Vienna for 10 years as part of the deal.
Pushing for higher fares
While there is an environmental argument to be made regarding the fares and induced demand, it is clear that Lufthansa Group also wants to suppress low fare competition. Ryanair subsidiary Laudamtion operates from Vienna and WizzAir runs a sizable operation from the city as well. Lufthansa Group CEO Carsten Spohr has not been shy about efforts to remove lower fares from the market. A year ago, speaking at the IATA Annual General Meeting in Seoul, Spohr stated, “We shouldn’t be taking advantage of the environment for that little money.” When asked to clarify exactly what the right amount of money was to justify a flight he was non-committal, adding “You have to balance the impact on the environment with the purpose of the industry, the value it creates. I believe that we are not balancing the value of what we are creating with the environmental impact it has.”
The right solution in my mind is somewhere between the two extremes. We don’t want this industry to become only for the rich around the world. That’s where it started from and we are very proud that we were able to democratize aviation and flying across borders. The other extreme, I think that selling a ticket for five dollars creates the wrong the discussion. Somewhere in between a solution has to be found.
While perhaps not wanting to see a reversion to a market where only the rich can afford to fly, the push for slightly higher fares is part of a long line of moves the company has made, opposing efforts that helped reduce passenger costs and otherwise make services more accessible to a broader market. Years ago the Group CEO expressed concern that lie-flat beds in business class would erode the company’s margins in first class. The push for higher fares now continues that drive, seeking a stronger financial position for the operation at consumers’ expense.
The company failed at slowing the spread of beds in business class, but it appears victory is in sight for the fares. Presumably lawsuits will be filed challenging a minimum fare level requirement, so it may not truly come to pass. But the position of the company and the government is clear in terms of what is acceptable and desired moving forward.
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