Volatility and market abuse

2
Mike Wootton

Mike Wootton

I had to take a trip to Palawan for an important meeting last Friday. A recently adopted habit is to use SkyScanner to try to find the best ticket price and usually it works quite well, particularly for medium to long haul routes. The volatility of air ticket prices on Philippine “budget” airlines seems, however, now to have confounded the ability of SkyScanner’s data sources to the extent that the prices shown become suddenly not available part of the way through the booking process. The cheapest fare available and booked eventually some days in advance was about P10,600 return, which compares to a more regular price of about P3,000. For various reasons it was necessary to return earlier than booked to Manila, so an obvious option was to take the preceding flight with the same carrier Air Asia/Zest on which there were apparently spare seats. The charge for this change was P8,200. The total charge, therefore, for a trip from Manila to a meeting in Palawan is over $400! It’s less expensive to fly to Hong Kong, Kuala Lumpur, Singapore or Bangkok.

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“Budget airlines” is, of course, a misnomer. Few foreign airlines fly to the Philippines and those that do could never operate domestic routes so the only non-budget airline is Philippine Airlines, which seems to utilize the same computerized ticket trading system as the erroneously named budget carriers. The pricing concepts embodied in the booking systems indicate that to change flights is simply not an option; the cost penalties for doing so are prohibitive. Such penalties may be acceptable if the original price were, indeed, a budget price, but clearly the original price was not a budget level price.

Alongside the scantily, if at all, justified leaps and bounds of Philippines utility cost increases, water and electricity, and the cost of LPG and gasoline which jump up and down like a “whore’s drawers” [as the old saying goes], gives the distinct feeling of living on a roller coaster so far as the predictability of future costs is concerned, even to the point of “what will they be tomorrow?” Official statistics on annual inflation, cost of living, etc. because of the way in which they are calculated give an appearance that some effective forms of price control operate which in reality are totally non-existent.

The only way of combatting this cost of living “whores drawers” syndrome is for somebody or some group to take the issue to the Supreme Court, out of which after all the gathering and submissions of court acceptable evidence, may or may not come a result that recognizes the interests of the consumers, and even then, which may or may not as in the case of Meralco’s recent rate hikes, actually be properly enforced.

Glaringly obvious is that there is, for all practical purposes, no effective way to combat these excesses of the private sector. Those whose job it is to represent the interest of the citizens—politicians and government regulators—are themselves captive to the all-powerful Philippine private sector. Is it any surprise, therefore, that Indonesian and Malaysian business people go to such lengths to infiltrate the Philippine market in order to capture some share of this unconstrained action, preferably without putting too much of their own capital at risk in the process?

Admittedly there are now more flights between Manila and Palawan than there used to be, and elsewhere in the world the opening up of air travel markets to budget operators has produced dramatic increases in customer choice and destinations. But here in the Philippines, the free market is quite unconstrained and unconstrained free markets are a very undesirable thing.

Contrary to conventional wisdom, the Philippines really is now an expensive place to live and to operate, so that belief should certainly be extinguished—another competitive advantage bites the dust. But that said, there is plenty of opportunity for new entrants not burdened with any form of social conscience or need to conform to ethical practices to make a fat profit . . .

As for the consumers, well, just pay up and accept it . . . That’s how it is. Hopefully one day there will be a government that actually protects its citizens.

Mike can be contacted at mawootton@gmail.com

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2 Comments

  1. I totally agree with you Mike. I am a Filipino-Australian earning in Australian dollars. When I get the chance to visit the Philippines, I find the prices, not just for domestic flights to be prohibitive. This makes me wonder, if I were earning in dollars, how can most Filipinos afford expenses of daily living? A friend of mine who happens to be the CFO for Leo Burnett in Indonesia says Indonesia is more expensive than Manila. Do you think that the increasing cost living is more of a Southeast Asian trend more than an isolated issue of the Philippines?

  2. The issue is there is no real competition and the companies that are performing the price hikes are usually owned by the politicians. It is clear from other parts of the world that the only way to make companies behave in a way that is favorable to the consumer is to give the consumer choose to go to other providers. Monopolies or near monopolies never favors the customer!
    True free markets with governmental regulation or complete states control is the only way to regulate prices. The way companies such as Meralco can state the price of electricity after the consumer has used it is unbelievable and would not be allowed in any other country in the world yet it is allowed here, what does that tell us!!!