The Ministry of Transport: Not taking into account price of air tickets

In recent days, the story of the ceiling price, the price of air ticket floor is being concerned by the public when Vietnam Airlines has reported to the Vietnam Aviation Administration to consider adjusting the ceiling price and applying the ticket floor price.

The Ministry of Transport: Not taking into account price of air tickets

The representative of the Ministry of Transport said that it has not received the proposal for price bracket adjustment from Vietnam Airlines and that the price adjustment should follow the market mechanism.

Specifically, with the air ticket price, Vietnam Airlines proposes to increase from 50,000 to 250,000 VND for flights from 500 km to 1,280 km or more, the ceiling fare will be unchanged with the routes of socio-economic development , other group of flight routes below 500km.

With the floor price, according to the first option, Vietnam Airlines proposes to apply the variable cost of low-cost airlines based on the costs of Pacific Airlines (under Vietnam Airlines Group) in the period of 2019. Accordingly, the floor price for routes under 500 km is 414,000 VND, 570,000 VND for routes 500 – 850 km, 755,000 VND for routes 850 – 1,000 km, 804,000 VND for routes 1000 – 1,280km and 917,000 VND for routes from 1,280 km or more.

The second option offered by Vietnam Airlines is 35% of the proposed ceiling price, higher than the first option. Accordingly, the floor price for flights from less than 500 km to 1,280 km or more will gradually increase from VND 560,000 to the highest of VND 1.4 million. If approved, the airlines will not be able to launch programs with super-cheap or even 0 VND flights, but must comply with this floor price.

Notably, Vietnam Airlines also wants to “acquire” to be granted more than 50% of the allocated flight slots and franchise.

According to the leaders of the Civil Aviation Administration of Vietnam, this agency is studying the proposal of Vietnam Airlines on the floor price and lowering the ceiling price of air tickets. This is not the first time the airline has proposed a floor price. The proposal is normal because it depends on the form and the business strategy of each firm.

But the ceiling price and floor price are related to many passengers, so it is necessary to assess the impact, consult many relevant agencies. To change the ceiling price or issue the floor price, the Ministry of Transport must issue a circular to implement it.

This proposal, immediately met with opposition from public opinion and experts, after that, the Ministry of Transport did not approve this proposal.

A representative of the Ministry of Transport said that it has not received a proposal for price bracket adjustment from Vietnam Airlines. However, with the current Vietnamese aviation market with the participation of many private airlines, the price adjustment should follow the market mechanism. The legal framework already stipulates that this issue should be applied and implemented in accordance with the regulations.

“At present, the Ministry of Transport will not discuss about the price of air tickets. The most important thing is to stabilize air transport operations when translating Covid-19 is still complicated. Everything must comply with the law to create equal competition for businesses ”, said the representative of the Ministry of Transport.

The representative of the Ministry of Transport affirmed that the point of view of the Ministry of Transport is that if there is consideration of adjustment, it must also be in the direction of diversifying products offered to passengers. For people to enjoy many types of services. In contrast, all competing firms must be equal.

Eliminate motivation for competition, loss for people

Looking at vietnam airlines’ proposal, many economists believe that if the general floor price for air tickets as Vietnam Airlines proposes, it will be invisible to eliminate competitive motivation, passengers will lose the opportunity to have cheap tickets and also violate the Competition Law.

If applying the air ticket floor price and offering 2 options to apply domestic air ticket floor prices, the management agency has “sacrificed” the interests of the people when they can no longer buy cheap air tickets to benefit Vietnam Airlines.

Representatives of Vietnam Airlines shared to the press, the basis for raising ceiling prices and applying floor prices is a problem for the airline to overcome difficulties during the Covid-19 period, reduce competition, trample on each other to weaken themselves. Not only domestic competition, when the market recovers, international aviation “jumps in”, the internal strength of Vietnam’s aviation is weaker.

Up to now, the proposal to impose a floor ticket price of Vietnam Airlines continues to face a “wave” of protesting public opinion and economic experts wonder that the purpose of the ceiling price of Vietnam Airlines’ air tickets is. Is wanting to “deprive” passengers of the opportunity to buy cheap airline tickets? the price of air ticket floor price for the benefit of the business or for the passenger, who is the beneficiary?

According to Dr. Le Dang Doanh, former Director of the Central Institute of Economic Management (CIEM), now, with airfares that airlines are launching, has created a competitive market mechanism in a healthy and fast-growing way. It is from this competition that new passengers have the opportunity to buy cheap air tickets with quality aviation services.

TS. Le Dang Doanh said: “If you want the aviation industry to develop, the state needs to let airlines compete fairly and regulators should only supervise quality in the best way”.

“The competition among airlines is also about improving technology, service, and quality of flights, then consumers will benefit compared to the price of air tickets. If the floor price is applied, many businesses will neglect and take advantage of it without innovating. I think it is necessary to respect the principle of competition in the market economy “, said Dr. Le Dang Doanh.

Private aviation is creating equal competition, and people are benefiting

The airline experts frankly pointed out that it was the private airlines that created the competitive aviation market, helping the aviation industry to develop in both quantity and quality compared to the monopoly period of Vietnam Airlines. Why has the unfair behavior of private airlines made the airline industry better?.

“The current management of the aviation industry is distorting the market, causing confusion for investors and private airlines. The more loss, Vietnam Airlines, is supported from capital to policy, while private airlines also have real losses but not yet been supported. On the contrary, these firms are “having” to create profits in order not to be trusted by banks, leading to borrowing capital with higher interest costs and the Securities Commission cut margin (as a rule, listed companies will be cut margin if the loss is 2 consecutive quarters) ”, the analyst said.

According to this expert, Vietnam Airlines is best to bravely look directly at the “traumatic” acceptance truth to reform the National Airlines, so that Vietnam Airlines continues to compete fairly and equally with private airlines. State regulators also need to stop indulging the airline. The aviation industry is struggling and in desperate need of support.

In particular, the application of this floor price may also violate many laws such as Competition Law, Civil Aviation Law, Enterprise Law, Investment Law and violate commitments, bilateral and multilateral agreements that Vietnam Has already signed up, so it should be considered with caution.

No country has an air ticket floor price

Experts say that in developed countries they do not regulate the price bracket for air tickets like Vietnam. Their price management principle is post-check, no daily control. But when a lawsuit arises related to one of the following three contents, the regulator will check and handle it.

The first is that the airline has to use its large position and monopolize its market position to suppress and destroy its competitors; the second is whether to use a monopoly position to sell at too high or too low prices; The third is to use the support of the State created to dump or squeeze other companies.

According to experts, in principle passengers have access to cheap prices depending on the policy and cost of each airline, flight route, flight network, and business network. But if the airline A sells too cheaply, lower than the cost by taking advantage of other resources such as banks, real estate, airline B can sue under competition law.

Therefore, firms should coordinate very peacefully, without braces to achieve business efficiency in a win-win way is best.

With floor and ceiling prices, the above expert said that this is an economic issue with a very complicated social impact, so it is necessary to carefully evaluate. Firm A proposed the floor price also has their own reason, but how the price is very complicated.

Firm A wants a common floor price for all, but firm B does not want a different market segment. A traditional airline with full service in ticket price cannot sell the same floor price as a low-cost carrier with many discounts on services. If the same floor price is not equal.

If the price of the floor is specified, the low-cost carrier must have a lower floor price than the traditional carrier, because the construction of the floor price must be based on the principle of cost, while the full service airlines will cost more than the airline Cheap.

According to Assoc.Prof. Dr. Ngo Tri Long, former Director of the Market Research Institute of the Ministry of Finance, assessment: “The price of air tickets can be a sign of eliminating healthy competition”.

Assoc.Prof.Dr Ngo Tri Long said, currently, we do not have healthy competition in the aviation market and the petroleum market. Why hasn’t a healthy competition yet? Because there are a number of enterprises holding dominant positions, accounting for over 30% market share.

“According to the Price Law, the state only applies ceiling prices, without applying airfare floor prices, because the application of floor prices does not encourage competition and is not beneficial to consumers. The principle of competition is the basic characteristic of the market, there must be competition to lower product costs and improve service quality”, Mr. Long said.

Source: ndh.vn – Translated by fintel.vn

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