Vietnam to lower domestic economy airfare cap from next year

The finance ministry's decision to lower the cap on domestic economy-class airfares by 15 percent from next year won't significantly affect current air ticket prices, airlines said Friday.

The Finance Ministry early the same day said as from Jan. 1, 2015, the cap will be reduced to VND4,250 per passenger per kilometer, from the current VND5,000 (23 US cents), value-added tax not included.

Its decision came following a suggestion to the effect made by The Civil Aviation Authority of Vietnam (CAAV) on Monday, which said that dip in international oil prices so far has saved carriers’ cost by 17 percent.

According to CAAV, the current price cap was calculated based on A1 Jet fuel price being $130 a barrel. But the fuel price has been down to $84.7 a barrel on Asian markets in December, and $90.63 a barrel in Vietnam after a seven percent import tariff.

Fuel accounts for around 39.5 percent of carriers’ cost, the agency said.

The Finance Ministry ordered CAAV to rely on the new cap to set the fares for different distance: under 500 kilometers, between 500 and 850 kilometers, between 850 and 1,000 kilometers, between 1,000 and 1,280 kilometers, and above 1,280 kilometers.

Representatives from CAAV and local carriers said the new cap won’t cause significant impact on their business as they are already charging 10 to 20 percent below the new cap.