Ministry of Construction responds to proposal to reduce airfare prices

In five months, Vietnamese airlines ran 58 routes with 89,000 flights, carrying 30.4 million passengers, up 8.8 per cent from last year.

The Ministry of Construction has sent an official dispatch to the People's Committee of Bình Định Province (now Gia Lai Province) to respond to a proposal from the locality on a coordinated solution to reduce airfare prices to a reasonable and stable level, aimed at improving the competitiveness of tourism to Việt Nam and to the province.

In an effort to reduce airfares, the former Ministry of Transport (now the Ministry of Construction) issued Decision 1723/QĐ-BGTVT dated December 31 last year, which set a maximum price for basic economy class domestic air passenger transport services sold within Việt Nam.

Vietnamese airlines have created flexible ticket prices ranging from low to high, depending on the market situation (supply and demand), ticket conditions, ticket issuance time and service quality, ensuring that prices do not exceed the maximum prescribed price.

The Ministry of Construction has also directed the Civil Aviation Authority of Vietnam to deploy solutions aimed at supplementing and balancing the capacity of Vietnamese airlines' domestic and international routes, helping airlines to improve their operating capacity in accordance with demand.

The ministry confirmed that these solutions have brought positive results to the aviation market.

Specifically, Vietnamese airlines regularly operated 58 regular domestic routes in the first five months of this year, carrying out about 89,000 flights. The domestic passenger volume through airports reached 30.4 million passengers.

This represents an increase of one route, more than 5,000 flights and an 8.8 per cent rise in domestic passengers through airports compared to the same period last year.

At Phù Cát Airport in former Bình Định Province, Vietnamese airlines operated more than 3,300 flights connecting to Hà Nội and HCM City in the first five months of this year, with a volume of more than 532,000 passengers.

This indicates an increase of over 100 flights and a 1 per cent rise in passengers compared to the same period last year.

Developing and attracting tourists was a comprehensive issue, linking many sectors including visa procedures, local tourism promotion policies, service quality and connections between travel companies and food service businesses, hotels and transportation, stated the Ministry of Construction.

The main driving force in attracting and stimulating tourism must come from local policies. For domestic tourism, aviation is not the only means of transportation. Passengers can choose other means of transportation, such as railway, roads or inland waterways.

“Therefore, in addition to reducing airfares to a reasonable level, localities need to proactively coordinate with relevant agencies and units to find comprehensive solutions to promote local tourism, such as enhancing communication, improving service quality and revising policies on costs of accommodation, entertainment, food and transportation,” the ministry stated.

Exchange rate influence

According to the Ministry of Construction, fluctuations in air transport service prices are mainly affected by two key factors: variations in cost-forming elements and changes in market supply and demand.

Specifically, in the cost structure of a flight, fuel costs and costs of renting, purchasing, repairing and maintaining aircraft account for 70-80 per cent of the total cost.

Almost all of these costs are paid in foreign currency and are directly affected by exchange rate fluctuations.

Meanwhile, airline fuel prices and exchange rates are greatly affected by the domestic and international macroeconomic and political situation, which is beyond the control of airlines and specialised management agencies.

The Ministry of Construction said that the current developments in Jet A-1 fuel prices and exchange rates continued to put pressure on the costs of Vietnamese airlines.

According to the latest data, Jet A-1 fuel prices increased to US$86.40 per barrel on June 23 this year, breaking the downward trend that went on since 2022.

Regarding exchange rates, the USD/VNĐ exchange rate has been on a strong upward trend from 2021 to present.

According to updated information from Vietcombank, the USD/VNĐ exchange rate reached a historical peak last month, with the selling rate of $1 for VNĐ26,220, growing by 2.78 per cent year-on-year.

As for the supply and demand of the domestic air passenger transport market, the ministry confirmed that airfares were similar to the prices of most other goods and services on the market, operating in accordance to the law of supply and demand.