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Transport ministry rejects airfare floor price proposal

Released at: 10:23, 10/04/2017

Transport ministry rejects airfare floor price proposal

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Proposal from Vietnam Airlines and Jetstar Pacific turned down by Ministry of Transport.

by Duy Anh

Vietnam will not set a floor price on air tickets despite proposals from the national flag carrier Vietnam Airlines and its subsidiary Jetstar Pacific, a government minister has said.

“If airlines are able to lower their prices, why should we stop them?” Minister of Transport Truong Quang Nghia told a ministry meeting last Friday. “Our job is to make sure price cuts and promotions adhere to the law.”

Regulations on air tickets will remain unchanged, and no floor price will be set. The ceiling price may be adjusted from time to time.

Last month, Vietnam Airlines suggested a floor price on domestic airfares of between VND1.54 million ($68) and VND4.2 million ($185). Jetstar Pacific, which is 70 per cent owned by Vietnam Airlines and 30 per cent owned by Australia’s Qantas Airways, proposed the floor be set at between VND600,000 ($26.5) and VND1.2 million ($53).

But Vietjet Air, the country’s only private carrier, said that setting a price floor is not common practice worldwide and is against Vietnam’s competition law. Known for marketing stunts like bikini-clad flight attendants, Vietjet listed its shares on the Ho Chi Minh City Stock Exchange in February, which have increased 43 per cent since, closing at VND129,100 ($5.7) on April 7.

Vietnam Airlines said that while it has been offering a wide range of airfares starting from VND800,000 ($35), the average spending per passenger last year fell nearly 20 per cent from 2013 to VND1.3 million ($57). It said that 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 ($110.3 million) to its revenue in one year, it believes.

The national flag carrier’s financial report released last month reported that net profit last year soared four-fold from 2015, to VND2.1 trillion ($92.7 million), even though revenue rose only 43 per cent to VND70 trillion ($3.1 billion). Net profit was actually cut by a net loss of nearly VND444 billion ($19.6 million) in the last quarter of the year. Its shares are now trading on the Unlisted Public Company Market (UPCoM) after a January 3 debut.

Vietnam’s aviation market has potential for expansion, following annual growth of 29 per cent in 2016, with passenger numbers reaching 52.2 million, based on data from the Civil Aviation Authority of Vietnam. The country will continue to see double-digit increases in passenger numbers over the next decade, following annual growth of 17 per cent in the past decade, according to ACB Securities.

Cashing in on low fuel prices and budget airlines, the new Vietnamese middle class are flying in ever-greater numbers within Southeast Asia. Malaysian budget airline AirAsia has said it will develop a low-cost carrier in Vietnam by teaming up with local businesses to take advantage of the country’s travel boom.

The region’s largest budget airline will partner Gumin Co., Hai Au Aviation Joint Stock Co., and businessman Mr. Tran Trong Kien in the venture, which is expected to take to the skies early next year, AirAsia said in a statement to Malaysia’s stock exchange. Its Vietnam venture will need investment of VND1 trillion ($44 million), with AirAsia to contribute 30 per cent after raising internal funding, according to the filing.

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