Vietnamese airlines battle over air fare floor price proposal

By Doan Loan, Anh Minh   April 4, 2017 | 01:00 pm GMT+7
Vietnamese airlines battle over air fare floor price proposal
Landing and parked Vietnam Airlines aircraft are seen with a VietJet aircraft at the Tan Son Nhat airport in Ho Chi Minh City. Photo by Reuters

The Transport Ministry says it will study the proposal carefully before making a final decision.

National flag carrier Vietnam Airlines has proposed to the aviation authority to set a floor price for air tickets, similar to a plan sought by its subsidiary Jetstar Pacific, but budget airline VietJet has opposed the move, saying it would create "unfair competition".

Vietnam Airlines, which reported a huge loss in late 2016, suggested the floor price for domestic air fares should be set at between VND1.54 million and VND4.2 million ($68-$185) in a proposal sent to the transport ministry in late March.

The Civil Aviation Authority of Vietnam (CAAV) is seeking opinions from airlines whether to raise the air fare cap for economy class by 7-16 percent from the current range of VND1.6 million to VND3.75 million.

Jetstar Pacific, one of Vietnam's two budget airlines, has suggested the floor be set at 29-34 percent of the cap. The carrier is 70 percent owned by Vietnam Airlines, while Australia's Qantas Airways owns the remaining 30 percent.

But VietJet Air, Vietnam's only private airliner, said setting a price floor is not a common rule worldwide and is also against Vietnam’s Competition Law.

“The rule will hinder the opportunities for low-cost carriers. That means it will create unfair competition,” a VietJet representative said.

Lai Xuan Thanh, head of the CAAV, said the aviation authority has yet to make a proposal to the transport ministry, and the idea of a floor price comes from the carriers.

The transport ministry will study the proposals carefully before making a final decision, while any price regulation will need to ensure sustainable growth and healthy competition, Deputy Minister of Transport Nguyen Hong Truong told VnExpress on Monday.

Vietnam Airlines said while it has been offering a wide range of air fares starting from VND800,000, the average spending per passenger last year dropped nearly 20 percent from 2013 to VND1.3 million.

It said higher fuel prices and foreign exchange rates have increased its costs compared to 2015. If the proposed floor prices are adopted, they could add VND2.5 trillion to Vietnam Airlines'  revenue in one year, the airline said.

The national carrier reported its net profit last year soared four-fold from 2015 to VND2.1 trillion, even though revenue jumped only 43 percent in the same period to VND70 trillion, it said in its financial report published late last month.

The annual net profit was cut due to a net loss of nearly VND444 billion in the last quarter ending December, the airline said. Its shares are now traded on the country's Unlisted Public Company Market after its January 3 debut.

Vietnam’s aviation market has potential for expansion after annual growth of 29 percent in 2016, with passengers reaching 52.2 million, based on CAAV data. Malaysian budget airline AirAsia has said it will develop a low-cost carrier in Vietnam by teaming up with local businesses to catch up with the country’s travel boom.