Airline service prices increase sharply

Recently, Vietnam Airports Corporation has proposed to shorten the roadmap for increasing aviation service prices to get money to reinvest in infrastructure in this field.

The proposal to increase aviation service prices by the Civil Aviation Authority of Vietnam and the Airports Corporation of Vietnam (ACV) has not yet been approved by the Ministry of Transport, but ACV has proposed to shorten the roadmap for increasing aviation service prices at major airports with high passenger throughput.

More airports to increase fees

For passengers, each one-way air ticket will increase by 25,709 VND/ticket in additional air service prices.

According to ACV's report, in the period of 2016-2020, the total investment in airport infrastructure needs about 31,670 billion VND, of which the total capital demand expected to be disbursed in this period is 22,143 billion VND. The average annual investment capital demand is more than 5,600 billion VND/year.

However, with an average after-tax profit for the 2017-2020 period expected to be around VND2,500 billion/year (with profit from main production and business activities accounting for 55%), of which annual dividends are expected to be around VND1,500 billion/year (6% of charter capital), the remainder used to set up the Development Investment Fund (around VND800-1,000 billion/year), ACV will not be able to meet the capital investment needs to upgrade and expand airport infrastructure.

“Therefore, adjusting aviation service prices to create investment sources for aviation infrastructure, focusing on the 2017-2020 period, is extremely urgent,” the ACV representative emphasized.

Compared to the previous proposal, ACV proposed to add 4 airports including Phu Quoc, Lien Khuong (Da Lat), Buon Ma Thuot and Phu Bai (Hue) to the list of Group A airports (24/7 operating airports) along with Noi Bai, Tan Son Nhat, Da Nang, Cam Ranh, Phu Quoc, Vinh and Phu Bai airports.

According to ACV leaders, this adjustment aims to help the Corporation increase aviation service revenue by about 38 billion VND compared to previous calculations, thereby further meeting ACV's capital needs, creating a source of capital for investment in upgrading and expanding infrastructure.

Last March, the Civil Aviation Authority of Vietnam agreed to ACV's proposal to increase aviation service prices and sent a document to the Ministry of Transport, recommending approval of the adjustment of the price frame for passengers traveling on domestic routes.

Specifically, service prices for domestic passengers will be increased, narrowing the gap between domestic and international flights to a difference of 2-4 times; prices for landing and take-off services for domestic flights and overnight parking fees will be increased.

Shorten the price increase path to make more money

According to the proposal of the Price Management Department, Ministry of Finance, to reduce the impact of adjusting aviation service prices, it should be divided into 4 phases, starting from October 1. This plan has also been unanimously approved by the Civil Aviation Authority.

Specifically, phase 1 is from October 1 to December 31, 2017; phase 2 is from January 1 to March 31, 2018; phase 3 is from April 1 to June 30, 2018 and phase 4 is from July 1 to December 31, 2018. In particular, domestic passenger service fees, applied to each airport group A, B and C, phase 1 increases from 60,000 - 75,000 VND/passenger; phase 2 increases from 60,000 - 80,000 VND/passenger; phase 3 increases from 60,000 - 85,000 VND/passenger, phase 4 increases from 60,000 - 100,000 VND/passenger.

Meanwhile, ACV calculated that revenue would increase by VND1,043 billion, of which airlines would spend an additional VND161.5 billion (equivalent to an increase of VND4,531/air ticket, a rate of 0.02% of air tickets) and service prices collected from passengers would be VND883.6 billion (equivalent to an increase of VND24,789/air ticket, a rate of 0.1%).

“The profits and dividends will supplement ACV with a total capital of VND1,538 billion for the plan to invest in, upgrade and expand airport infrastructure,” said an ACV representative. However, this source of capital will only meet 27% of ACV’s average annual investment capital needs in the coming period.

ACV proposed to adjust domestic passenger service prices to 3 stages (instead of 4 stages according to the consensus of the Ministry of Transport and the Ministry of Finance).

Although the Price Management Department and the Civil Aviation Authority have agreed to divide the increase in aviation service prices into 4 stages to minimize the impact on passengers and airlines, in the latest proposal, ACV wants to shorten it to 3 stages.

Specifically, from October 1, 2017, the price will increase by 75,000 VND/passenger; from January 1, 2018, the price will increase by 85,000 VND/passenger; from July 1, 2018, the price will increase by 100,000 VND/passenger. ACV representative said that with this price increase roadmap, the company will increase revenue by 1,148 billion VND (an increase of 105 billion VND compared to the plan of the Price Management Department and the Civil Aviation Authority). Thus, for passengers, each one-way air ticket will increase by 25,709 VND/ticket, the price of aviation services will increase by...

Impact on airfares

Regarding ACV's proposal, the representative of the Civil Aviation Authority of Vietnam said that adding Phu Quoc, Lien Khuong, Phu Bai and Buon Ma Thuot airports to Group A is reasonable. However, this Authority did not analyze the reasons and rationality of putting these 4 airports on par with current Group A airports such as Tan Son Nhat, Noi Bai, Da Nang... Because, if compared, the 4 airports that ACV wants to add to Group A (to increase aviation service prices - reporter) compared to current Group A airports is still a large gap.

However, regarding the roadmap for adjusting aviation service prices, according to the Civil Aviation Authority of Vietnam, in order to stabilize the macro-economy and avoid major impacts on the business activities of airlines and passengers participating in air transport, the Authority proposed to implement the roadmap for adjusting aviation service prices according to the recommendations of the Price Management Department, Ministry of Finance. That is, the roadmap for increasing aviation service prices should not be shortened according to ACV's recommendations.

In addition, the Civil Aviation Authority also proposed to supplement regulations on the ratio of take-off and landing prices/full-package ground service prices at group C airports to create a basis for determining take-off and landing fees at group C airports under the condition that the airport area is transferred to the State.

Currently, ATR 72 is the type of aircraft mainly used at Group C airports. Based on the current price and price range, the ratio of take-off and landing price/full ground service price at Group C airports for ATR 72 aircraft is about 19.7%. The Civil Aviation Authority recommends adjusting the take-off and landing service price to account for 20% of the full ground service price and aircraft pilot price (if any).

Regarding ACV’s proposal to increase air service prices and shorten the price increase roadmap, a representative of a domestic airline said that if the price adjustment is approved, it will certainly impact airlines and passengers. However, the increased costs of airlines will certainly be calculated by the airlines to be “poured” onto passengers through increased ticket prices.

Specifically, from October 1, 2017, it will increase by 75,000 VND/passenger; from January 1, 2018, it will increase by 85,000 VND/passenger; from July 1, 2018, it will increase by 100,000 VND/passenger.

“Although there will still be many different price ranges for passengers to choose from, and there will still be cheap tickets, the rate will be less. Furthermore, the cost of airline services that are usually included in the current ticket price is still collected by the airlines and is not under the airlines’ control, so the price of air tickets will certainly increase if this proposal is passed,” said a representative of this airline.

In addition, ACV's proposal to add the above 4 airports to Group A was also not agreed by the airlines. Representatives of the airlines all said that in terms of scale, development speed, and passenger traffic, the 4 ports of Phu Quoc, Phu Bai, Lien Khuong, and Buon Ma Thuot cannot be compared with Noi Bai and Tan Son Nhat. This ranking is awkward and somewhat forced.

According to VNN