Airlines blame their losses on low ceiling airfares

The airlines, which provide domestic flights, including Vietnam Airlines, Jetstar Pacific Airlines (JPA) and Mekong, all have reported losses. Especially, Indochina Airlines has to stop operation also because of loss. The loss has been attributed to the low ceiling airfares set by the Ministry of Finance.
Managers of the national flag air carrier Vietnam Airlines many times repeated that the airline has been incurring losses with domestic flights, and the losses can be only offset by the profits made from international flights. Meanwhile, the majority of the profits of big airlines like Vietnam Airlines come from land services.
It’s low airfare ceiling to blame
Vietnam Airlines has reported to the Civil Aviation Authority of Vietnam (CAAV) the forecast loss of 1787 billion dong for domestic flights this year.
JPA incurred the loss of 10 million dollars, or 200 billion dong, in 2010. Le Song Lai, Deputy General Director of the State Capital Investment Corporation (SCIC), a shareholder of JPA, has noted that the stiff competition among airlines has caused a loss of 2 trillion dong to air carriers, while the sum of money has fallen into the pockets of passengers.
Air carriers all blame the low ceiling airfares on their losses. While the fuel prices have been increasing rapidly (the fuel price has increased by 40 percent so far), the ceiling airfares have been adjusted very slowly.
CAAV has recently submitted to the Ministry of Transport two new airfare solutions. If they get the approval from the transport ministry, the ceiling level would increase by 50 percent at least from the currently applied level.
With an aim to protect consumers, Vietnam is still applying the ceiling airfare mechanism. Meanwhile, airlines offer different airfares after considering their business plans so as to obtain reasonable profits.
According to Vietnam Airlines, in the first nine months of the year, the number of tickets sold at the ceiling level just accounted for 49 percent, while the average air ticket price was just equal to 77 percent of the ceiling level.
Meanwhile, JPA’s airfare was equal to 59 percent of the ceiling level. This shows that the competition among airlines has helped passengers fly at the low costs.
Nevertheless, airlines have the same voice that it is necessary either to remove the ceiling airfare mechanism, or lift the ceiling airfare to a very high level in order to ensure profit for air carriers.
According to Vietnam Airlines, as for the flights with the distance of 1280 kilometers and higher, the ceiling level should be raised to 4 million dong from the current level of 2.7 million dong. Meanwhile, Air Mekong said that the ceiling airfare should be raised to 5.2 million dong.
Bad management also a reason
Experts, on one hand, admitted that the low ceiling airfare is a reason behind the loss of airlines, on other hand, said that airlines need to reconsider their management skills.
In the current circumstances, the airlines which have better management methods would have bigger advantages than others. Air Asia, the budget airline from Malaysia, still can make profit while it still maintains competitive airfares in comparison with other airlines. Experts believe that the minimizing of services on flights plus the good expenses management skills both have helped the airline make profit.
A report released in October 2010 showed that the revenue per seat of Air Asia was 4.87 dollars, while the expenses were 3.52 dollars. Meanwhile, the figures of JPA were 4.84 dollars and 5.07 dollars, respectively, according to www.centreforaviation.com.
Vietnam Airlines last year reported the profit of 300 billion dong, while its total chartered capital was 9 trillion dong. The air carrier has a big apparatus with 17,000 workers.
Meanwhile, JPA said that one of its problems was that it chartered old aircraft, because of which it had to spend much money on maintenance fee.