Vietnam’s Civil Aviation Administration has suggested there should be drastic fare cuts on domestic routes, claiming the dramatic drop in fuel prices should have prompted airlines to lower fares.
It made the proposal to the Ministry of Transport.
CAAV’s petition is based on the latest Jet A1 fuel costs , airfares, which has cut the flying costs per km per passenger from 23 US cents to 20 US cents.
According to the Ministry of Finance’s Decision 2967/QD-BTC, the maximum price for economy-class tickets on domestic air routes was calculated based on the price of Jet A1, which was estimated at USD130 per barrel with zero percent import tax.
However, the price of Jet A1 (including 7% import tax) has dropped to USD90.63 per barrel.
Given these fluctuations, the domestic fare cap on economy-class tickets should be adjusted accordingly, the agency noted.
The CAAV said that fuel costs account for approximately 39.5% of an airline’s overall costs. Hence, the airline’s total costs will drop by 17% following the aviation price decline.
Airlines are generally reluctant to drop fares when fuel costs fall, fearing the decline will be temporary and the time required to raise fares could be lengthy once passengers are accustomed to lower fares.
However, airlines are still charging fuel surcharges as an extra on the fares quoted and this fee could be lowered without impacting on the base fare.
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