Former Beijing ticket agent Cheng Chunjiang experienced the ups and downs of the aviation market.

"Nearly every ticket agent admits that the mid-1990s was the golden era for the travel industry. Passengers were rushing to buy tickets, although we were not making any special offers," Chen said.

He opened his ticket agency in Beijing's Haidian District in 1995.

He started his business in a 11 square-metre room near Zhongguancun, China's famous high-tech region, in the spring, and moved into a 75 square-metre apartment within a year.

Official statistics showed that the number of air passengers in China increased massively in the mid-1990s.

But the situation began to deteriorate in 1998 and 1999.

For no particular reasons, Chen recalls, airlines began to offer heavy discounts in order to attract customers.

"Some smaller airlines even agreed to provide 70 per cent discount, and larger airlines had to follow up soon," Chen said. The airlines that provided no discount or a minimal discount found it hard to attract customers.

Ticket agents were later told that the over-supply in aviation market was the reason behind the intense competition.

The industry's regulator, the General Administration of Civil Aviation of China (CAAC), issued the discount ban in early 1999, making matters worse for ticket agents.

"People had got used to discounted tickets. Without discounts, passengers did not like to buy ticket from agents any more," Chen recalled.

Chen moved his office to a smaller venue in 2000, and shut it down the following year.

"Being afraid of punishment from CAAC, no airlines provide heavily discounted tickets. Many small ticket agents like us just had to give up," Chen said.

Chen's business was combined with another ticket agent in Haidian District, which, as Chen described, only hired two sales persons to deal with telephone sales.

With the money earned in the past, Chen invested in another company in Beijing's booming house-decoration industry.

Ticket agents could opt to either quit or stay put, but there were few such options for airlines.

Following the discount ban, market competition ground to a halt. Air ticket prices have remained stable during both the peak and off-peak seasons.

Industry analysts described the condition as "not hungry, not full."In other words, all airlines have a certain amount of passengers, but the passenger flow is far from bringing them good benefit.

Wang Yongtao, an aviation researcher, said that the difficulties were a result of airlines' special identity as State-owned enterprises.

"The fast development of the industry in early 1990s was caused by the long-suppressed demand in travelling market. With the development of China's economy, more and more people can afford to travel by air," he said.

But coming to 1997 and 1998, the passenger increase had developed into a relatively stable condition, and airlines had to offer heavy discount to attract more passengers.

"Theoretically, airlines with good management and low operating cost, could grow stronger in such competition while less-efficient airlines would collapse. But since all those airlines are State-owned enterprises, any collapse means the loss of State assets," Wang said.

For this reason, administrative measures took the place of market adjustment.

"Only market competition, no matter healthy or cut-throat, could halt the loss of State-owned assets," Wang said.

CAAC took on a double role in the market at that time. It was the industry regulator, while was also the keeper of State assets.

"Failure to maintain the State assets seemed more serious at the time," Wang said.

It was not until summer of 2002, when CAAC retreated as a sole industry regulator, did the withdrawal of the ticket discount ban return to the top of the agenda.

The greater freedom in ticket sales, were it not for the impact of SARS, should have been in place earlier this year.

Though the discount control was in place as an industry policy, officials inside CAAC were also divided as to whether the discount ban was a wise choice.

One senior official contacted by China Daily, who preferred to remain anonymous, maintained that the market competition should have developed on a healthy track if CAAC could stand the growing pains.

"The competition could make the stronger airlines survive, while killing the poorer carriers. Some regional airlines which have only two or three aircraft to operate should be combined or shut down," he said. But CAAC's policy to some extent saved the inefficient airlines from hot market competition.

(HK Edition 07/16/2003 page2)

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