Viet Nam proposes airfare cap removal

The Civil Aviation Authority of Vietnam has proposed removing a cap for airfares on domestic routes operated by the country’s airlines in an effort to increase competition by raising service standards, the Vietnam News Agency and local media reported. Carriers will be able to set their own prices, which would help the market operate according to the law of supply and demand, giving airlines more flexibility in adjusting ticket prices for example during peak periods. “The ceiling price limits the improvement of service quality for customers who are willing to pay more than the ceiling rate. At the same time, it also affects competitiveness through service quality – an important factor in the sustainable development of airlines,” the authority explained. It made the proposal in a draft report reviewing the 2006 Law on Civil Aviation of Viet Nam and revisions to it passed in 2014. Airfare ceiling rates are currently decided based on distance, with five groups of routes ranging between VND1.6 million and VND3.75 million dong (USD69-163). The new rules would apply only to scheduled routes where three or more airlines are competing, and the cap would continue to exist on all other routes. Nguyen Thien Tong, an aviation academic, told the newspaper HCM City Law that in years past Vietnam had only one scheduled passenger carrier, Vietnam Airlines, for which the state set a ceiling to control prices. Now, however, there are many more – Bamboo Airways, Jetstar Pacific, VASCO – Vietnam Air Services, VietJetAir, Vietravel Airlines – and there is fierce competition between them, making it appropriate to remove the airfare limit. But the authorities must also ramp up supervision to avoid airlines creating a cartel i.e. covertly agreeing between themselves to raise ticket prices, to the detriment of customers, he cautioned.