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Vietnamese airlines want domestic airfare caps raised, even removed, amid fuel cost hikes

Vietnamese airlines want domestic airfare caps raised, even removed, amid fuel cost hikes

Saturday, July 02, 2022, 16:21 GMT+7
Vietnamese airlines want domestic airfare caps raised, even removed, amid fuel cost hikes
This image shows passengers at Noi Bai International Airport in Hanoi, Vietnam. Photo: Quang Dinh / Tuoi Tre

Many Vietnamese airlines have proposed that the ceiling prices of domestic air tickets be further increased or removed as they have suffered heavy losses due to wildly soaring fuel costs.

Even though air tickets have been rising, even higher than before the COVID-19 pandemic, carriers argued that they have to make up for relentlessly rising fuel expenses.

Round-trip airfares of economy class for the Hanoi - Ho Chi Minh City route are fluctuating around VND3-5 million (US$129-214) per ticket and those for business class are VND8-17 million ($343-729), an increase of 20-50 percent compared to periods with passenger shortages due to the COVID-19 pandemic.

Airfares to famous tourist destinations, such as Da Nang and Phu Quoc, have even changed hourly, and customers can hardly find cheap tickets even though for early morning or late-night flights.

Many customers commented that many airlines might have taken unfair advantage of higher fuel prices, triggered by rising world oil prices, to push air tickets up to make up for their loss during the COVID-19 hibernation.

Meanwhile, carriers pointed out that the world oil price has surged from $70-80 to $130 per barrel, and even to $162 per barrel on June 28, pushing their fuel costs up by thousands of billions of dong (VND1 billion = $42,890).

With such fuel cost burden, many airlines must raise air ticket prices to make up for their increased expenditure.

In addition to the soared fuel cost, the high travel demand on the market has also contributed to the sharp rise in air tickets, a commercial executive of a domestic airline explained.

A boom of travel in the ongoing summer is being seen, with a high demand for flights from June to mid-August.

As a result, customers who booked tickets two or three months before their summer flights paid about VND1 million ($43) per ticket while those who bought tickets right before the same flights had to pay VND1.7-2 million ($73-86) per seat.

The sooner booking, the cheaper fares, carriers said.

“Besides fuel cost, airfare also depends on the supply-demand rule. However, the airfares have yet to reach the cap fixed by the government,” the executive stated, without mentioning how much the ceiling rates are.

Among the six domestic airlines, including Vietnam Airlines, Bamboo Airways, Pacific Airlines, Vietravel Airlines, Vasco and Vietjet, only the latter has announced its operating profit, while the others have suffered great losses, despite the strong increases in both airfare rates and passenger numbers.

During the first quarter of this year, Vietjet recorded consolidated revenue of VND4,522 billion ($194 million) and after-tax profit of VND244 billion ($10.47 million), up 12 percent and 98 percent, respectively, over the same period in 2021.

However, Vietjet’s profit came mainly from its financial investment activities, without which the firm would have suffered a gross loss of nearly VND257 billion ($11.03 million).

According to industry experts, high fuel prices in recent months have worsened the financial situation of many carriers, especially Vietnam Airlines (VNA).

In 2019, fuel costs accounted for 28-29 percent of VNA’s total costs, but the ratio has soared to 38-40 percent now, said Trinh Hong Quang, deputy general director of VNA.

If the world oil price remains at $150-156 per barrel until the end of 2022, the company will have to incur an additional cost of about VND8 trillion ($343.1 million).

Therefore, Quang said, VNA and many other airlines want authorities to increase the airfare ceilings, even remove it, so that ticket prices will be market driven and carriers will determine ticket prices flexibly based on their input expenses.

The Civil Aviation Authority of Vietnam (CAAV) has again proposed competent agencies increasing the ceiling prices of domestic air tickets so that airlines can flexibly adjust airfares to cover costs.

Two months ago, CAAV proposed the rises of VND50,000 ($2.1) and VND250,000 ($10.7) per ticket for short routes (500-850 kilometers) and long flights (from 1,280km upward), respectively.

Dr. Le Dang Doanh, an economic expert, said that the airfare caps should be adjusted to suit fluctuations of the petroleum market.

An increase or even removal of such caps may be made at an appropriate time when there are enough factors of a fair competition, Doanh said.

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Vinh Tho - Cong Trung / Tuoi Tre News

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