Why airfares won't drop anytime soon

By Anh Tu   May 19, 2024 | 03:19 pm PT
Why airfares won't drop anytime soon
Vietnam Airlines' jets are grounded for maintenance at Noi Bai International Airport, Hanoi in April 2024. Photo by VnExpress/Anh Tu
Bringing down fares now is nearly impossible for Vietnamese carriers as a shortage of jets poses operational headaches and post-Covid difficulties still linger, industry insiders have said.

Airfares have risen by 15-20% since the end of 2023 as domestic airlines only operate 160-170 jets now, 50 fewer than last year, senior airline executives said at a recent forum.

Vietnam Airlines and Vietjet have grounded more than 20 Airbus A321neo jets for major engine maintenance that might last until next year.

Bamboo Airways has reduced its fleet size from 30 to five after a major restructure, while Pacific Airlines has returned all of its leased jets.

High fuel costs and the strengthening U.S. dollar also add to the challenges, the executives said.

Another difficulty the industry faces is the lingering financial troubles caused by the Covid-19 pandemic.

Bamboo Airways deputy CEO Truong Viet Cuong said fares would be gradually adjusted to a "reasonable" range but had to be adequate to keep the airline going.

Salary cuts and layoffs are still continuing in the tourism and aviation industries post-Covid, with Bamboo reducing its payroll by 70%, he said.

Nguyen Quoc Ky, chairman of Vietravel Airlines, said most airlines suffer operating losses and make their money mostly from additional services.

Vietnam Airlines reported accumulated losses of VND40 trillion ($1.57 billion) as of last year.

Its deputy CEO, Dang Anh Tuan, said the carrier, like most others across the world, only earns a profit of US$1 per customer in the current market.

A Vietjet representative said airlines in Vietnam mostly make their profits from the Lunar New Year holidays and during the summer while operating with a low load factor during the rest of the year.

Cuong said one of the biggest expenses for the industry is jet leasing and maintenance, payable in U.S. dollars and accounting for 55-60% of total costs.

"Currently these expenses are at a high level as global maintenance companies demand high rates."

Bamboo Airways wet leased an aircraft – meaning it came with crew, maintenance and insurance -- for $3,000 per hour in early February but the rate has now jumped to $4,500, and there is a scarcity of jets despite this.

All the airline representatives at the forum called on the government to reduce fees to support the industry at this difficult time.

Globally too airfares are expected to rise after a period when airlines offered discounts to attract customers, according to the Association of Asia Pacific Airlines.

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