Karen Harverson
The deregulation of an industry may bring about more competition and=20 lower prices but it could also result in increased prices and less protecti=
for consumers. =D2Competition does not always result in prices coming down especially=20 when regulated industries deregulate such as the airline and broadcasting=
businesses,=D3 says John Ford, senior lecturer in accounting control and=20 management information systems at Wits Business School. He says if there are a number of competitors in the same business =D1prices=
may drop but not when there are only two competitors and one has been=20 supported by regulation. He warns that deregulation brings with it the downside of greater risk and=
less protection for the consumer.=20 He says the demise of Flitestar, Avia Airlines and Sudan Airways was=20 inevitable and consumers should realise that the price of a cheaper ticket=
brings with it a greater risk. On top of the actual cost of flying, a new airline has additional fixed cos=
such as newly leased planes at high interest rates, because it is a new air=
and it has to attract customers by offering discounted prices. Ford says the problem with many businesses is that they sell at any cost.=
Management needs to realise that all sales come with a cost. If the cost of=
that effort is too high then the sale should be foregone. He suggests that a company=D5s biggest customer may not always be its most=
profitable as companies often ignore the cost associated with a particular=
Ford says growth in turnover should not be taken as an indication of a=20 company=D5s profitability. =D2Sometimes scaling down an operation and=20 operating in a niche sector provides greater value than pure volume sold.=
He points to Comair as an example of a competitor which operates in niche=
markets where it can be effective, efficient and profitable. =D2One way that airlines keep costs down is by not offering commissions to=
travel agents to punt their airline. Commission is a variable cost in a=20 portfolio of largely fixed costs but the downside is airlines must have a=
mechanism which allows passengers to book and pay for flights outside the=
travel agent network.=D3 Conversely, says Ford, a company could pay higher than normal=20 commission in the hope that travel agents will push its flights at the=20 expense of others.