The Ministry of Finance has given the green light to a proposalby the Civil Aviation Authority of Vietnam (CAAV) to cut the ceiling of airfares for domestic services, the country’s aviation watchdog announced Friday.
The finance ministry has agreed to apply a 15 percent reduction to theairfare ceiling, which is currently capped at VND5,000 a km, CAAV chief Lai Xuan Thanh said.
The new ceiling, to be in effect on January 1, 2015, is VND4,250 a passenger per km.
By that time, airlines in the country are required to specify their fares for five categories of domestic services, depending on travel distance.
The categories include under 500km, 500-850km, 850-1,000km, 1,000-1,280km, and above 1,280km, Thanh elaborated.
The CAAV will assist the carriers in developing their pricing plans based on the market development and transport costs.
On Tuesday, the aviation authority cited declining fuel costs when it called on the Ministry of Transport and the Ministry of Finance to lower the ceiling of airfares for domestic services by 15 percent.
The aviation authority said the ministries should consider cutting the ceiling as prices for Jet A1, the most commonly-used fuel for commercial aviation, have fallen sharply.
Jet A1 fuel in Asia fetches US$84.7 a barrel this month, according to the CAAV.
With a seven percent import duty, the price is $90.63 a barrel, whereas the current airfare cap is based on the $130 a barrel fuel price, meaning Jet A1 quotes have dropped 43.4 percent.
As fuel accounts for some 39.5 percent of the total expenses of an airline, the slumping Jet A1 price helped cut 17 percent off the carrier’s operation costs, the CAAV concluded.
The CAAV and representatives from Vietnam Airlines, VietJet Air and Jetstar Pacific Airlines, however, have told Tuoi Tre (Youth) newspaper that the local airlines are already charging passengers under the airfare ceiling.
Airlines are allowed to set the fare for the 1,132km Hanoi – Ho Chi Minh City route at VND5.666 million ($266) per turn under the ceiling, but all carriers are charging passengers only around VND3 million ($141), Le Hong Ha, general director of Jetstar Pacific Airlines, said.
Under the new ceiling, the maximum fare airlines are allowed to charge passengers for the service is VND4.8 million ($226), or VND866,000 ($41) less.
The chief executives of Jetstar Pacific Airlines and VietJet Air told Tuoi Tre they could cut airfares by 10-12 percent and 10-20 percent, respectively, for their services in 2015.