MoT says no to price floor for air tickets

April 09, 2017 | 09:11

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Newspaper Giao Thong, the official press office of the Ministry of Transport (MoT), quoted Minister of Transport Truong Quang Nghia as saying at a recent meeting at the ministry that the MoT does not want a price floor for airplane tickets.

He said that if airlines can decrease their prices, there is little reason for the government to step in their way. “The job of the government is to ensure that the promotions are legal,” he said.

He said that during the Tet holiday the Civil Aviation Authority did a good job ensuring that air transport meets the demand and is safe and of good quality by increasing night flights and limiting the number of flights in rush hours.

“The air transport market has grown too hot. So in the upcoming period the government is going to collect the right air transport service fees to be able to make further investments into infrastructure,” Nghia said.

Earlier on April 5, at the first quarter press meeting at the ministry headquarters Deputy Minister Nguyen Hong Truong said that the ministry was considering all options on air fare management and any decision would keep the interests of customers at heart, not any airline. He added that the price management policy would ensure competition.

The amended Law on Civil Air Transport issued in 2014 stipulates that the price that airlines set should be within the limits stated by the MoT and they should notify the MoT on their prices. Currently, the price floor is VND0 and the ceiling is VND4,250 (19 US cent) per kilometre. Up to now, the airlines have always stayed within the limits.

Airlines have differing opinions on airfare limit

In March, CAAV started gathering opinions from airlines on a new price range for economy airplane tickets. Accordingly, the price ceiling is going to increase by 7-16 per cent, depending on routes.

In reply, Vietnam Airlines (VNA) said it agreed with the price ceiling. In addition, it proposed a new floor price for domestic air tickets. It said that VNA’s average revenue per passenger is higher than its average cost, however, the average revenue has been gradually decreasing over the past few years.

Earlier, VNA had proposed that CAAV raise the ceiling price for economy class. The ceiling and floor prices proposed by VNA are VND4.2 million ($184) and VND1.5 million ($66), respectively. If these adjustments are implemented, VNA’s revenue may increase by VND2.5 trillion ($109 million) after one year implementation.

The reason behind VNA’s offer is that the fuel price and the USD/VND exchange rate are on the rise, which will lead to a higher average cost per passenger compared to September 2015. Besides, VNA has invested in new airplane models A350/B787 and upgraded its service quality to four star standard.

Low-cost airline Jetstar Pacific, a joint venture between Vietnam Airlines (70 per cent) and Qantas (30 per cent), currently the only foreign-invested airline in Vietnam, replied that it also wanted a price floor. The airline explained that the price race among airlines will negatively affect the sustainability of airlines’ development, and recently there have been times when ticket prices were lower than train and coach fares and this may have created an imbalance in the growth of these different means of transport.

Meanwhile, Vietjet said that setting a ceiling price is not suitable neither with the laws of supply and demand nor with the rising competition in the Vietnamese airline industry. Besides, as the input costs of services are increasing, it is likely that even the new ceiling price will become outdated in the future. Thus, Vietjet proposed to increase or eliminate the ceiling price for airfares.

Vietjet added that setting a floor price is a violation of the Vietnamese Competition Law as well as international regulations. It said there is no country in the world that applies a floor price for airfares.

On April 3, the ticker HVN of Vietnam Airlines increased. HVN’s price rose by VND1,100 (4.84 US cent) per share, to VND29,000 ($1.28) per share. During the trading session, HVN reached its peak of VND29,900 ($1.3) per share. The increase was attributed to rumours that the MoT may support VNA’s proposed price floor and ceiling policies.

Previously, HVN was on a continuous decrease due to the company’s declining revenue and market share in Vietnam. In the last quarter of 2016, VNA’s loss was VND444 billion ($19.4). The exchange rate risk was also a concern for shareholders in 2017.

By contrast, on the same day, Vietjet Air’s stock fell by VND2,300 (10.12 US Cent) per share, although previously they had been hunted by plenty of investors.

Meanwhile, according to Tran Nguyen Le Van, CEO of coach booking site vexere.com, coach tickets are subject to much stricter pricing regulations. “Air ticket prices can rise several-fold during holiday season, while if coach companies want to raise prices, they have to ask for permission from the Department of Finance, the Department of Transport, and the management of the coach station. In addition, the time to get the approval is a few weeks and then a hike is not allowed to be more than 60 per cent.

Then, when in low seasons they want to decrease the price to $1, they also have to ask for permission, wait a few weeks, and the season is over.

The big difference between the pricing regulations for airlines and coach companies is causing difficulties for coach companies. Maybe the government should let coach transport compete fairly with airlines,” he said.

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