New draft law sets minimum air ticket price
A Ministry of Transport (MoT) draft law, which is currently collecting idea contributions, would enforce a minimum price for domestic air tickets, a move opposed by fast-growing low-cost carrier Vietjet Air.
According to the draft, the State management office would increase the ceiling price for air tickets as well as set the floor price, which would be the cheapest air ticket price that airlines are allowed to sell.
National carrier Vietnam Airlines (VNA) and Jetstar Pacific (JPA) agreed with the draft, especially the floor price, while low-cost airline Vietjet (VJ) said no to the floor price.
VNA and JPA commented that regulation for the floor price is in line with the current law on Civil Aviation of Vietnam. The law regulates that “airlines will decide ticket prices for domestic flights in the price framework regulated by the Ministry of Transport.”
According to the law, the ticket price framework must include floor and ceiling prices but due to low competition in the market, the Ministry of Transport has only applied the ceiling price.
Capacity for domestic flights has recently increased 30% a year. That has made airlines continuously reduce their ticket prices, sometimes to even lower than input prices.
This has affected the sustainable development of both airlines and the aviation industry.
“In some nations, such as Indonesia, the floor price for tickets is released to prevent price competition,” a JPA representative said.
The JPA representative suggested taking into account all the direct costs of a flight to calculate a standard floor price. This would include all expenditure that one airline must pay, including airplane price, petrol, staff, services. The total expenditure for a flight from HCM City – Hanoi would be around VND1.1 million (US$47) and this should be a floor price for a one-way ticket from HCM City to Hanoi.
At present, the ceiling price for the HCM City – Hanoi route is kept no higher than VND3.2 million ($140) for a one-way ticket.
With a different point of view, Vietjet said that the current aviation market is not a monopoly but rather there is a tough competition among aviation carriers.
“The Government should manage and supervise aviation ticket prices through the Competitiveness Law and Customer Rights Protection Law rather than releasing a floor price,” a Vietjet representative said.
“A floor price for air tickets is not suitable with the Competitiveness Law 2014,” he added.
Vietjet also revealed that in Vietnam, 90% of the population does not have the opportunity to travel by air due to high ticket prices.
“If the floor price is approved, local residents will be limited in their chance to fly and low-cost airlines will be limited to compete through its service reduction,” he added.
“Air ticket management with price frameworks for domestic flights is out of date. The Government should create competition and ensure a healthy competitive environment. Air prices should be decided by airlines,” Luong Hoai Nam, an aviation expert said.
“We should not grant regulations on floor price because the more competition, the more benefit customers can get. Vietnam has Competitiveness and Trade Laws to manage all activities of companies,” Nguyen Tien Thoa, deputy chairman of the Vietnam Price Appraisal Association said.
“The Government should directly manage prices if one enterprise dominates the market. But in the airline market now, there are four enterprises. If the Government applies floor and ceiling prices, airlines won’t compete on price any more,” Dr Ngo Tri Long, former head of the Ministry of Finance’s Price Management Institute said.
“The domestic airline market has had real competition during the last four years since Vietjet joined into the market, and that helped to reduce air tickets 50%. Despite selling cheap air tickets, Vietjet still makes a profit,” one airline expert said.
Vietjet did not release its average price for the whole year and it adjusted prices at different times. The airline often carries out promotion campaigns with several million tickets sold at VND5,000 (22 cents).
After six years of operation, low-cost airline Vietjet has gained 41% of the domestic market, nearly the same as national carrier Vietnam Airlines with 42%. Vietjet has improved its competitive ability in air tickets.
Answering the Vietnam News Agency’s question about rumours that the Civil Aviation Authority of Vietnam (CAAV), an agency belonging to the MoT, had proposed allowing floor air ticket sales, CAAV director Lai Xuan Thanh rejected this information, noting that this was only a proposal from an airline.