Air fare ceilings apparently haven’t been abolished after all

      An official circular removing ceilings on domestic air fares was issued by the Ministries of Transport and Finance in December 2008, but the decision has not been implemented.
Jetstar Pacific (JPA) pioneered the era of market-based airfares in February 2009, when it announced new ceiling fares under the spirit of Circular 103. The highest airfare that JPA suggested for HCM City to Hanoi, Hai Phong and Vinh routes was 3.7 million dong per one way ticket ($220). For Hanoi-Can Tho, JPA proposed that 4 million dong be its highest fare.
However, six months after its promulgation, Circular 103 ‘remains in a drawer’, and government management agencies have not acted on JPA’s suggested airfares.
Pham Xuan The, the Civil Aviation Administration of Vietnam’s finance division manager, said that while airline costs per passenger are around 1.2-1.3 million dong, the suggested airfares are overly high and will make passengers suffer.
The’s comment seems off the point. The proposed fares were only the levels registered by JPA. Whether JPA can sell tickets at these price levels depends on many factors, especially supply and demand.
Under the Circular No 103, the ceiling airfare scheme will not be applied on any routes where two or more airlines are providing flights. National flag carrier Vietnam Airlines competes with JPA on all the discount carrier’s routes. As JPA holds just 20 percent of the domestic aviation market, there is no need to worry that JPA’s fare scheme will have big impacts on the market.
Luu Thanh Binh, a Deputy Head of CAAV, acknowledging tardiness in implementing Circular 103, explained that there still exist difficulties that need to be settled to avoid harm to passengers’ interests.
The arguments of government agencies
Another deputy at CAAV, Lai Xuan Thanh, told a workshop in May that though some experts have suggested abolishing ceiling fares entirely, the Government thinks that it is necessary to maintain the scheme. Aviation, he argued, is a special kind of business and the State still needs to control fare pricing.
Dr Vu Dinh Anh, Deputy Head of the Finance Ministry’s Market and Price Research Institute agreed that it is necessary to maintain the ceiling airfare scheme.
Three airlines serve Vietnam’s domestic market: Vietnam Airlines, JPA and Indochina Airlines. Of the three, JPA is a budget airline, while Indochina Airlines only has one aircraft. The decisive voice is still Vietnam Airlines’.
An expert commented that the entry of new ‘players’ to the market does not necessarily mean that a competitive market has been created. That’s why Anh maintains that the State will still need to keep control over fares, even when the domestic market is fully developed.
How to deal with Circular 103?
Let’s go back to Circular 103. Airlines cannot understand why the Circular 103 has legal validity but has not been implemented.
JPA General Director Luong Hoai Nam told VietNamNet: “We have not received any document telling us to stop implementing the circular. . . . We registered new airfares in the spirit of Circular 103, but we have not received any response from government agencies,” he added. “This really a strange document”.
JPA only knew that implementation of the circular was suspended by reading newspapers and hearing statements of some officials.
The Ministry of Transport has reportedly consulted the National Assembly’s Standing Committee on management of service fees and air transport fees in accordance with the structure of a free market supervised by the State. Further, the Transport Ministry has asked the Finance Ministry to suspend implementation of the inter-ministerial circular until the Standing Committee renders a decision.
As such, airlines are now still following the provisions of Circular No 22 dated on March 21, 2007, which means that the ceiling airfare scheme still exists. However, Circular 22 has legally expired. This means that if disputes arise at this moment, government agencies will not know which document to rely on to settle disputes.
Dr. Le Dang Doanh, an economist, noted that if government agencies promulgate documents and then amend the documents spontaneously, enterprises will suffer, especially at difficult times like the present.