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​Vietnam’s aviation watchdog rejects airlines’ proposal to raise airfares

​Vietnam’s aviation watchdog rejects airlines’ proposal to raise airfares

Wednesday, August 15, 2018, 19:17 GMT+7

Vietnam’s aviation authority, under the direction of the prime minister, has turned down separate proposals to raise airfares by local airlines, asking the carriers to keep their service prices at stable rates.

Previously, national flag carrier Vietnam Airlines and budget Jetstar Pacific and Vietjet, the three leading airway carriers in the Southeast Asian country, simultaneously called on the Civil Aviation Authority of Vietnam (CAAV) to allow them to increase airfares.

Notably, Jetstar Pacific has suggested increasing ticket prices by as much as 25 percent over the current rates.

However, the CAAV has responded by requesting that these airlines keep their air tickets at current prices, pursuant to the guidance on stabilizing prices and ensuring the sustainability of the 2018 inflation target issued by the government and the Ministry of Transport.

The three airlines all said they need to increase airfares to cover rising expenses driven by a recent surge of global fuel prices.

What’s worth noticing is that the price-increase proposals were submitted to the CAAV at a time when the three carriers enjoyed thriving business results in the first half of 2018.

According to the chief accountant of national flag carrier Vietnam Airlines, average gasoline expenses accounted for 30-38 percent of total operating costs of the airline.

Every additional dollar increased in fuel price will make the operation cost of Vietnam Airlines escalate about VND230 billion (US$9.89 million) per year, he added.

The International Air Transport Association (IATA) anticipated that the average price of Jet A-1 fuel, a type of aviation fuel designed for use in aircraft powered by gas-turbine engines, could reach $85.4 per barrel this year.

That rate is much higher than the one used in a decision, stipulating the maximum airfares carriers are allowed to charge passengers, issued by the Ministry of Finance in December 2014.

Taking this into consideration, one CAAV representative said the aviation authority will evaluate and propose a more appropriate price scheme in 2019, depending on the actual situation of fuel prices and input costs using foreign currencies.

Profitable operations

In the first seven months of 2018, Jetstar Pacific’s total profit exceeded its plan six-fold, up over VND523 billion ($22.5 million) from the same period last year, posting impressive gains after years of making losses.

Its revenue of the same period grew 35 percent year-on-year and overshot its 2018 target by three percent.

Total cost of the airline in Jan-July is also one percent lower than planned.

Jetstar Pacific's parent company, Vietnam Airlines, also enjoyed a profitable first half of 2018.

In the first six months, Vietnam Airlines accumulated revenue of VND47.943 trillion ($2.06 billion).

Its post-tax profit increased by 83 percent to VND1,511 billion ($64.97 million), fulfilling 49.38 percent of sales target and more than 62 percent of profit target in 2018.

For the second quarter, the post-tax profit was VND309 billion ($13.29 million), up nearly four times compared to the same period last year.

Ticket sales accounted for VND18,927 billion ($813.8 million) of the total revenue of the second quarter of Vietnam Airlines. This means that the national flag carrier collected about VND210 billion ($9.03 million) from airfare per day.

Among the three airlines, low-cost Vietjet Air is the one that made the biggest profit in the first six months of this year.

The company earned a total revenue of more than VND21 trillion ($903 million), seizing a profit of over VND2 trillion ($86 million).

Its turnover in the second quarter reached VND8,637 billion ($371.39 million), up VND3.1 trillion ($133.3 million) or 52 percent over the same period last year.

Profit before tax of this quarter consequently reached more than VND711 billion ($30.57 million).

VietJet founderNguyen Thi Phuong Thao shared with the business and markets news site Bloomberg that the company’s revenue in the first half of 2018 was significantly attributed to supporting activities such as the sales of food and drinks on planes, or travel insurance, which saw a rise of 50 percent year-on-year.

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Bao Anh / Tuoi Tre News

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