Transport minister prefers Vietnam Airlines to cut airfares given whopping revenue spike

Vietnam Airlines might pride itself on exceeding both revenue and profit targets in 2015, but Minister of Transport Dinh La Thang has somehow tossed cold water on such successful performance.

The national carrier’s consolidated revenue in 2015 topped VND70 trillion (US$3.13 billion), 129 percent over its target, chairman Pham Viet Thanh said at a meeting held by the transport ministry in Hanoi on Monday.

The airline’s pre-tax profit also surpassed estimates by 44 percent, reaching more than VND1.4 trillion ($62.5 million), the chairman said, citing a company report.

“With such a huge profit, why don’t you cut airfares for people’s sake?” Minister Thang said, shortly after Thanh finished his reporting.

While Minister Thang also lauded the positive business results of the flag carrier, he insisted that Vietnam Airlines consider slashing ticket prices to benefit passengers.

The transport ministry and the Civil Aviation Authority of Vietnam (CAAV) have repeatedly encouraged airlines to cut airfares to help more people travel by air, at a time when fuel jet prices have constantly slumped.

Jet A1, the most common jet fuel, averaged only $57.45 a barrel, excluding taxes and fees, in Asia in November 2015, down more than 40 percent from a year earlier, according to Platts, a leading global provider of energy and petrochemicals.

Last month the average price continued dropping to $47.66 a barrel, a 39 percent decline year on year.

With fuel accounting for 39.5 percent of the operating expense of an airline, it is certain that carriers pay for lower input cost when jet fuel prices go down, according to CAAV head Lai Xuan Thanh.

In September 2015, the aviation watchdog also called on airlines to reduce airfares to attract more flyers, as Jet A1 prices were then nearly 50 percent lower than a year earlier.

Commenting on the statement by the transport ministry boss, Thanh said the minister only wanted to encourage, rather than force, airlines to slash fares.

“In a market-driven economy, how the airfare will be reduced depends on the specific business mechanism of each airline,” he said.

In Vietnam, airfares are currently capped at VND1.6 million ($70) to VND3.75 million ($167), for distances ranging from below 500km to more than 1,280km, after the CAAV lowered the ceiling in October last year.

“No airline is selling tickets near the ceiling, and the highest price is only 80 percent of the maximum rate,” Thanh said.

However, Vietnamese airlines said they had in fact cut airfares considerably, contributing to encouraging people to switch from traveling by road to by air in 2015.

Last year 40.1 million people traveled domestically by air, up 21.2 percent from a year earlier, as airfares became more affordable, according to the CAAV.

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