Floor price for air tickets, who benefits, who loses?

Proposal to regulate floor price of airline tickets

At the conference of full-time National Assembly deputies in April, giving comments on the Law on Prices (amended), delegate Pham Van Hoa (Dong Thap delegation) proposed that the draft law add a minimum price (floor price) for domestic air tickets, in addition to the current maximum price (ceiling price).

Agreeing with this opinion, Minister of Finance Ho Duc Phoc said that applying ceiling and floor prices for domestic air tickets is "very good and reasonable".

Accordingly, applying a floor price will prevent professional airlines from being defeated by low-cost airlines. For professional airlines, a ticket price of 0 VND or 200,000 - 500,000 VND is not enough to cover fuel costs, not to mention wages for workers or depreciation costs. Without regulations on both ceiling and floor prices, there will be a situation of "everyone doing their own thing", making it difficult to convince investors to invest in airlines.

Regarding this information, a representative of Vietravel Airlines said that if a floor price is applied to air tickets, it will reduce competitiveness and affect the recovery and development of Vietnam's aviation industry.

“The application of floor prices in the Vietnamese aviation market is unprecedented,” said a representative of this private airline.

The effects of applying floor prices

According to a representative of Vietravel Airlines, countries do not manage airfares with ceiling or floor prices. For example, in the period of 2016-2017, China and India also decided to abolish the regulation on minimum prices for airfares after a short period of application because they realized that they would lose more than gain when losing their competitive advantage with other airlines in the region. In addition, the national tourism industry has declined because of uncompetitive airfares.

If a floor price for air tickets is applied, low-income people will have difficulty accessing this service. Photo: N. Huyen

“In the Southeast Asian region, in countries that attract tourists such as Thailand, Singapore and Malaysia, airlines also practice free competition, ticket prices are determined by the market and self-adjusted according to supply and demand trends at each time. So why does the application of regulations on floor prices hinder the development of aviation?”, a representative of Vietravel Airlines asked.

More importantly, the representative of this private airline also acknowledged that the floor price must be carefully considered because if the Vietnamese management agency proposes a floor price at a fairly high level, it will lead to a situation where customers in the low segment cannot be reached.

Speaking with VietNamNet, economic expert, Associate Professor, Dr. Dinh Trong Thinh said that setting a floor price for airline tickets is unnecessary and not advisable.

Even the 0 VND tickets of airlines are also normal. Because the 0 VND tickets, cheap promotional tickets only account for a very small percentage of each flight, only applied on a few flights with few passengers, low season.

“Therefore, I think there should be no regulation on the floor price of air tickets in order to create conditions for promotions as well as to implement the requirements for flight route development of businesses.

No business is willing to promote flight tickets lower than production costs. As a business, they must make a profit. Therefore, it is normal for businesses to promote 5-10% off cheap tickets or have tickets for 0 VND. Do not interfere in that. If the state intervenes in the floor price, it is interfering too deeply in the business activities of businesses," Associate Professor Dr. Dinh Trong Thinh said.

However, Mr. Thinh believes that it is necessary to have a ceiling price for airline tickets. The reason is that currently the total output from one or two big airlines accounts for 70-80% of the market share. Without a ceiling price, these "big guys" can join hands to raise ticket prices. This leads to losses for consumers as well as difficulties for small businesses to compete.

Agreeing with this view, Associate Professor Dr. Ngo Tri Long, an economic and financial expert, said that the Ministry of Transport stipulates that the floor price for domestic flights is 0 VND, which means there is no floor price. Airlines offer 0 VND air tickets, but that does not mean that passengers do not have to pay a penny.

In fact, even if airlines offer tickets at 0 VND, customers still have to pay taxes and fees of about 600,000 VND/ticket. So when applying the floor price, of course the ticket price will increase.

The Civil Aviation Authority of Vietnam once proposed to apply a floor price.

In August 2021, the Civil Aviation Authority of Vietnam submitted to the Ministry of Transport a draft circular regulating the price range for passenger transport services on domestic flights. Accordingly, the Civil Aviation Authority proposed to apply a minimum price equal to 20% of the prescribed maximum price.

The proposal to apply a floor price was not approved by the Ministry of Transport and only applied a ceiling price to domestic air tickets.