Vietnam aviation authority asks airlines to lower airfare ceiling over slumping fuel costs
Wednesday, December 17, 2014, 12:48 GMT+7
The Civil Aviation Authority of Vietnam on Tuesday proposed lowering the ceiling of airfares for domestic services, citing declining fuel costs.
Economy-class ticket prices for domestic routes should be capped at VND4,250 per passenger per kilometer, in lieu of the current VND5,000, the CAAV said in a document filed to the Ministry of Transport and the Ministry of Finance.
The ministries should consider cutting the ceiling as prices of Jet A1, the most commonly-used fuel for commercial aviation, have fallen sharply, the aviation authority said in the document.
Jet A1 fuel in Asia fetches US$84.7 a barrel this month, according to the CAAV.
With a seven percent import duty, the price is $90.63 a barrel, whereas the current airfare cap is based on the $130 a barrel fuel price, meaning Jet A1 quotes have dropped 43.4 percent.
As fuel accounts for some 39.5 percent of the total expenses of an airline, the slumping Jet A1 price helped cut 17 percent off the carrier’s operation costs, the CAAV concluded.
The aviation authority noted, however, that all local airlines are charging passengers under the airfare ceiling.
Representatives from Vietnam Airlines, VietJet Air, and Jetstar Pacific Airlines told Tuoi Tre (Youth) newspaper the same day that they have yet to receive any request for reporting their airfare policies to the CAAV.
The airlines added their ticket prices have always been below the ceiling since 2011.
Airlines are allowed to set the fare for the 1,132km Hanoi – Ho Chi Minh City route at VND5.66 million ($266) per turn under the ceiling, but all carriers are charging passengers only around VND3 million ($141), Le Hong Ha, general director of Jetstar Pacific Airlines, said.
Ha said the airfare band of Jetstar Pacific Airlines includes 14 different prices, adding the carrier’s airfares next year would drop 10-12 percent compared to 2014.
His counterpart at VietJet Air, Luu Duc Khanh, also said the airline’s ticket prices are far lower than the ceiling.
Khanh added that the discrepancy from lower fuel prices will be used to run more promotional campaigns that offer 10-20 percent discounts next year.
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