Planes of domestic carriers park at the Nội Bài International Airport. — VNA/VNS Photo
The ceiling price for airfares on domestic flight routes will be increased from the beginning of March, according to Circular 34 issued recently by the Ministry of Transport.
The price framework for basic economy class passenger transportation services will be amended. The ceiling airfares for domestic routes below 500km will remain unchanged at VNĐ1.6 million per one-way ticket for routes which serve the socio-economic development (to remote areas or islands operated by only one carrier) and VNĐ1.7 million for other routes.
The remaining flight routes are subject to a price increase of VNĐ50,000-250,000 per one-way ticket, depending on the length of each route.
The maximum price includes all costs a passenger must pay for an airline's service, excluding value added tax and fees collected on behalf of the airport (including passenger service fees and security assurance fees, luggage; service charges with additional items).
According to a review by the Civil Aviation Authority of Việt Nam (CAAV) under the Ministry of Transport, the proposed increase in domestic air ticket prices is due to changes in the factors that form ticket prices, especially hikes of fuel prices and exchange rates.
Data from the International Air Transport Association (IATA), Jet A1 fuel price in Asia in June 2023 was US$85.4 a barrel.
CAAV’s calculations showed that with the assumption that fuel cost accounts for 39.5 per cent of total costs and having no fluctuation for other cost factors, the airlines' fuel cost in June was increased by 23.1 per cent compared to September 2015. The fuel prices increased total costs by 10.9 per cent.
The CAAV has received comments from Vietnam Airlines, Vietjet, Pacific Airlines, and Bamboo Airways on increasing domestic air ticket prices.
According to Vietnam Airlines, aviation fuel costs account for about 36 per cent of the airline's transportation costs. The average fuel price in 2022 compared to 2015 (when the current price ceiling was applied) increased by about 85 per cent from $67.3 to $124.4 a barrel, causing the company's costs to increase by about 30.5 per cent.
Along with that, more than 70 per cent of air transportation costs are paid by foreign currency, while ticket sales revenue in Việt Nam is in Vietnamese đồng. The exchange rate was increased by 6.6 per cent from 2015 to 2022, causing the company's costs to increase by 4.3 per cent respectively.
Therefore, Vietnam Airlines' passenger transportation cost in 2022 was VNĐ2,769 a passenger per kilometre, increasing by 43 per cent compared to the cost in 2015 (VNĐ1,933 a passenger per kilometre). — VNS