BACKGROUND:

The Commission took suo motto notice of media reports that the airline was charging exorbitant Haj fares and conducted an inquiry which proved that PIA had unreasonably increased Haj fares by more than 80 percent from Rs 38,500 to Rs 70,000 for South Region and from Rs 46,200 to Rs 85,000 for North Region as compared to Haj fares in preceding years (2006 and 2007) thereby attracting violation of Section 3(3)(a) of the Ordinance. In order to determine whether price is excessive, the Commission relied on a two-stage test adopted by the ECJ which provided that 1) first both the price and cost are compared to determine the profit margin achieved by the dominant firm if that profit margin is found to be excessive, then the dominant firm’s pricing policy is investigated in order to determine whether the price is unfair; and 2) a comparison between historical prices of a dominant firm is undertaken to determine if the increase in fees is not justified by an increase in costs i.e. benchmarking of prices.

Similarly, the Commission also looked into the notion of price discrimination i.e. selling at a price or prices such that the ratio of price to marginal costs is different in different sales. In this respect, the Commission noted a difference in prices between pilgrim and non-pilgrim travelers which was a prima facie violation of section 3. In this regard, the Commission also considered if there were any justifications for this price differential and found the undertakings responses unsatisfactory.

The Commission also addressed PIA’s ‘state compulsion’ defence which the Commission found to be untrue as neither were PIA’s actions the result of compulsion nor were they regulated conduct in any manner.

The Commission also considered whether price fixation by mutual consultation between PIA and Saudi Airlines constituted a prohibited agreement. In this regard, it was found that the prices were fixed at the behest of the respective governments (which were not undertakings as per the law), as such, there was no prohibited agreement.

ORDER:

The Commission imposed a token penalty of Rs. 10,00,000/- (Rupees Ten Million Only) on PIA vide its Order dated November 20, 2009; for unreasonable increase in Hajj airfare during the year 2008, as compared to Hajj season 2007 i.e. from Rs. 38,500/- to Rs. 70,000/- for the south and from Rs. 46,200/- to Rs. 85,000/- for North, and thereby abusing its dominant position. The Commission also ordered PIA to work out a mechanism to identify and ensure that refund is made to all affected passengers.

CURRENT STATUS:

Case transferred to CAT from Supreme Court.