Vietnam: Government Rejects Airfare Price Floor Proposal

Posted by Reading Time: 4 minutes

By: Koushan Das

Vietnam’s Ministry of Transport has rejected a bid to set price floors on air tickets as proposed by the country’s national carrier, Vietnam Airlines, as well as its subsidiary, Jetstar Pacific. Under the proposals, Vietnam Airlines advocated for a floor price for domestic travel between US$68 (VND 1.5 million) and US$185 (VND 4.2 million), while Jetstar Pacific proposed rates between US$26 (VND 600,000) and US$53 (VND 1.2 million).

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In support of the proposal, Vietnam Airlines cited rising fuel costs and foreign exchange volatility as the primary reasons for a minimum pricing strategy. Others within the industry, however, did not share reservations about aviation’s prevailing state of affairs and instead expressed concerns over efforts to impose a minimum pricing scheme. Private airline VietJet Air, for example, argued that fixing a floor price would violate Vietnamese competition law and hamper sustainable development of the airline industry.

Instead of adopting the minimum rates requested by either airline, but in response to the concerns raised by parties such as Vietnam Airlines and Jetstar Pacific, government regulators have suggested changing the ceiling prices for airfare based on external market factors such as fuel costs. The Ministry of Transport has proposed to increase the ceiling prices for domestic routes by 7 to 16 percent to compensate for rising fuel costs. While this will certainly allow a greater degree of pricing flexibility, the move falls short of requests from some within the industry, such as VietJet, which proposed removing ceiling rates as well to allow airlines to upgrade and provide better services to passengers.

Despite disagreement over governmental involvement, Vietnam’s aviation industry has posted outstanding progress in recent years and is widely expected to offer continued opportunities for investment in the near to medium term. In the last year alone, the sector witnessed an annual growth of 29 percent, with over 52.2 million passengers being served. By 2020, passenger numbers are expected to grow to 122 million, driven by comparatively low fuel prices, opening up of new routes, and increasing competition. With these factors at play,  the sector is predicted to be one of the fastest growing aviation markets in the world.

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However, even as opportunities continue to emerge in Vietnamese aviation, the rapidly evolving nature of the country’s regulatory environment, exemplified by the Ministry of Transportation’s recent ruling on price floors, will ultimately dictate the direction that the industry takes. As such, interested parties, as well as those already invested in the country, should be sure to monitor issuances by the Ministry of Transport and other governmental bodies closely in order to stay on top of compliance and to understand opportunities fully.


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Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region. We maintain offices in Hanoi and Ho Chi Minh City, as well as throughout China, South-East Asia, India, and Russia. For assistance with investments into Vietnam please contact us at vietnam@dezshira.com or visit us at www.dezshira.com

 

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