XN000022-1997-01-29 — Page 33

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Reply:

Mr President,

Questions (a) and the first part of question (b) relate to the Agreed Minimum Package Price scheme operated by the Travel Industry Council of Hong Kong. The scheme was first introduced by the Travel Industry Council in October 1991 as a self- regulatory measure of the outbound travel industry to prevent undercost operation with the objectives of stabilising the market and reducing the risks of travel agency default or abscondment. At present, there are eight package tour destinations covered by the AMPP scheme. All of them are short-haul destinations where competition is particularly keen. The scheme is regularly reviewed by the TIC to ensure that the AMPPs remain responsive to market changes and are set at a realistic level.

Late last year, the Travel Industry Council reviewed the AMPPs for package tours to Korea and Thailand and considered that they might no longer be at a realistic level. The Travel Industry Council therefore decided to lift the AMPPS for these two destinations on a trial basis for two months from mid-October to mid-December 1996. The Council hoped that the temporary lift would help adjust prices through market forces.

During the trial period, the Travel Industry Council closely monitored the prices for the package tours to Korea and Thailand. They considered that the prices set freely by the travel agents were at a realistic and fair level and that there was no evidence of price undercutting during the period. The Council were therefore satisfied with the result of the trial.

Towards the end of the trial period, the free market prices closely tracked or were above the AMPPs before they were lifted. The Council considered it necessary and prudent to resume the AMPPs for package tours to Korea and Thailand at the end of the trial period in mid-December, having regard to the onset of the Christmas and New Year holidays, which are the peak season for outbound package tours. The Council took this action to prevent intentional cut-throat pricing to attract purchase of tours by consumers which were cancelled later on because they were not commercially viable. The Council was also keen to minimise the possibility of deliberate underpricing by rogue travel agents for the purpose of amassing payments from consumers before default or abscondment.