The Finance Ministry has issued a decision that lowers the current cap on domestic economy class airfares.— Photo vietq

HA NOI (Biz Hub) — The Finance Ministry has issued a decision that lowers the current cap on domestic economy class airfares to VND4,250 per passenger per kilometre from the current VND5,000 ($23 cents) from January 1, 2015.

Announcing the decision, national carrier Vietnam Airlines said on Friday that the cap did not include value-added tax.

Lowering the cap by 15 per cent would not impact current air ticket price, it said. The Finance Ministry's decision follows a suggestion made by the Civil Aviation Authority of Vietnam (CAAV).

The Decision (2967/QD-BTC) mentions that the cap was calculated based on the price of $130 per barrel for Jet A1 fuel with zero per cent import tax.

However, the price for Jet A1 (including seven per cent import tax) was only $90.63 per barrel as of December 2014. Therefore, the petrol's cost has dropped by 43.4 per cent against the maximum price considered in the ministry's decision. According to the CAAV, fuel accounts for approximately 39.5 per cent of an airline's overall costs. The fall in petrol prices, therefore, would bring down airlines' total costs by 17 per cent.

The Finance Ministry has also ordered CAAV to set fares for different rely on the new cap to set fares for different distances: under 500 kilometres, between 500 and 850 kilometres, between 850 and 1,000 kilometres, between 1,000 and 1,280 kilometres, and above 1,280 kilometres. — VNS