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Vietnam Airlines proposes floor price for airfares

Tuesday, April 04, 2017, 16:44 GMT+7

Vietnam Airlines has joined Jetstar Pacific in calling for a minimum price to be set for domestic airfares, in a bid to help them fight tough competition from low-cost rivals.

The Ministry of Transport, through the Civil Aviation Authority of Vietnam, is gathering feedback on a plan to lift ceiling prices for domestic routes by 7-16 percent in order to deal with the rising jet fuel costs.

While Jetstar has backed the higher ceiling prices, no-frills carrier Vietjet has opposed the idea, saying it is no longer suitable to restrict airfares in a rapidly growing aviation market like Vietnam.

Jetstar has also proposed imposing a price floor on domestic airfares in order to “stop carriers from competing on cheap tickets.”

Vietnam Airlines, which holds a 70 percent stake in Jetstar, has also said in feedback to the CAAV that minimum airfares for domestic services should be set to “increase the effectiveness of air routes.”

The flag carrier has complained that its average revenue per passenger has steadily fallen over the last few years.

Vietnam Airlines earned an average of VND1.3 million (US$58) from every passenger it carried in 2016, compared to VND1.48 million ($66) in 2015 and VND1.58 million ($71) in 2014, while operation costs have continued to rise due to higher fuel costs and the VND to USD exchange rate.

The carrier supported the idea of lifting the current airfare cap by 7-16 percent and at the same time, “applying a price floor to increase the effectiveness of services.”

Vietnam Airlines said tickets for a 1,280km flight on an Airbus A321 should be restricted to between VND1.54 million ($69) and VND4.2 million ($188).

Should this price scheme be put into operation, Vietnam Airlines’ revenue would surge by VND2.5 trillion ($111.61 million) after one year, the carrier said.

Vietjet has earlier stated that the price floor is against both Vietnamese law on competition and international practice, as no country is currently imposing such price controls.

The floor price of VND1.54 million as suggested by Vietnam Airlines will also strip many low-income earners of the chance to travel by air.

Vietjet is known for promotional campaigns where tickets are on sale at zero dong, while its usual tickets are also available at affordable rates, helping many locals be able to fly for the first time.

After posting a record post-tax profit of VND2,496 billion ($111.43 million), the low-cost carrier believes that both floor and ceiling rates for airfares are unnecessary, as airlines should be allowed to compete in the open market.

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