Hanoi (VNS/VNA) - The Ministry of Transport hasproposed increase ceiling airfares for domestic flight routes of over 500km by 50,000– 250,000 VND after eight years of being unchanged.

The proposal was raised in a draft circular amending Circular No17/2019 about the airfare bracket for passenger transport on domestic flightroutes, which was being raised for public comments.

The ceiling airfares for domestic routes below 500km will be keptunchanged at 1.6 million VND per one-way ticket for routes whichserve socio-economic development (to remote areas or islands operated byonly one carrier) and 1.7 million VND for other routes.

For routes from 500km to 850km, the ceiling fare was proposed at 2.25million VND, compared to the current rate of 2.2 million VND.

The ceiling fare for routes between 850km and 1,000km was proposedat 2.89 million VND, an increase of 100,000 VND. An increase of 200,000 VND wasproposed for routes from 1,000km to 1,280km at 3.4 million VND.

A further ceiling fare of 4 million VND was proposed forroutes of over 1,280km, translating to an increase of 250,000 VND.

The proposal of increasing ceiling airfares was raised in thecontext that jet fuel prices saw huge fluctuations. Many said that ceilingairfares being kept at low level was hindering the growth of the aviationsector. Some even proposed to remove the caps.

According to the Civil Aviation Authority of Vietnam (CAAV), thecurrent ceiling airfares had been applied since 2015 when Jet-A1 fuel price wasat just around 60 USD per barrel.

Updates from the International Air Transport Associationnoted the Jet-A1 price in Asia was around 85.47 USD per barrel on June 2.

The CAAV estimated that fuel accounted for around 39.5% of thetotal cost of airlines, meaning that the expense in jet fuel of airlines inJune 2023 was 10.62% higher than December 2014 and 23.14% higher than September2017. The total cost increased by 7.87% compared to December 2014 and 10.92%than August 2015.

Besides, the exchange rate was also an important factor whichaffected the cost of carriers thanks to 70% of airlines’ expenses being paid inforeign currencies while ticket sales were in Vietnamese dong.

Statistics showed that the USD/VND exchange rate increased6.6% from 21.900 VND on average in 2015 to 23,350 VND in 2022.

Currently, airfares follow a flexible pricing mechanismfrom low to high depending on ticket terms, time of ticket issuance and marketdemand.

According to Bui Doan Ne, General Secretary of the Vietnam AviationBusiness Association, carriers won't necessarily simultaneously increaseairfares with the rise in ceiling prices.

There are six airlines operating domestic routes and absolutely noexclusive routes, Ne said, adding that customers could easily access domesticair transport services with a wide range of choices. Countries around the worldwere also moving in the direction of loosening and lifting regulations on pricebrackets.  

He said that increasing ceiling airfares would not affectconsumers but benefit passengers because it would enable carriers to improveservices quality through the diversification of airfares and tickets.

The lifting of the ceiling on airfares would certainly helpairlines better meet the needs of passengers, especially during the peak periodbecause airlines could offset the cost of two-way flights.

Economic expert Dinh Trong Thinh said that domestic airfaresshould be market–based to create momentum for the aviation industry to overcomedifficult times. The aviation industry is important to promoting tourism,he added.

Thinh said that airlines should cooperate with tour operators,hotels and local authorities in tourist hotspots to promote travelling.

On June 19, the National Assembly voted to pass the Law on Pricewith 92.91% approval. Accordingly, the National Assembly agreed to applyceiling prices on domestic air passenger transport services.

The Ministry of Transport said that it is still necessary toimpose the ceiling on airfares because competition in domestic air transportremains limited. There is currently one carrier holding a marketshare of more than 30 % and dominating the market.

In the long term, the ministry said that the ceiling could beremoved when air transport capacity better meets requirements and the aviationmarket sees more diverse participation of carriers. The competition mustbe substantive by ticket prices, service quality and passengers need theright to choose based on their capacity.

The removal of the ceiling on airfares of domestic routes musthave an appropriate roadmap, the ministry said./.