Facing rising global prices, fuel costs are up a whopping 13% in the first quarter for local airlines, prompting them to petition the government for a hike in fare ceilings on domestic routes.
The deputy general director of Vietnam Airlines, Pham Ngoc Minh, said oil prices rose from USUS$65 per barrel late by 2005 to US$71 per barrel recently, impacting fuel costs by as much as 10% for Vietnam Airlines in the first quarter of 2006.
“The fuel price hike has little impact on international flights because we are allowed to levy a surtax, depending on the fluctuation of fuel prices. Our concern is the losses we are currently suffering from the domestic flights, the airfares of which are low, without an allowable fuel surtax,” said Minh.
He said in 2005, fuel accounted for 17% of Vietnam Airlines production costs, with the same costs rising to an astronomical 30% in the first quarter of 2006. “Although costs have risen, we cannot counter that with a surtax on domestic flights because it is neither accepted by customers nor allowed by the government. “
Revenues’ from domestic flights make lip a large proportion in sales of the HCM City-based Pacific Airlines, which has launched promotion campaigns during the low season. “We have encountered losses due to low airfares and high fuel costs,” said the company’s managing director, Luong Hoai Nam.
He said by 2005 that fuel costs took up 20% of the company’s turnover and the figure rose to 31% in early 2006, adding that it would be even higher due to the fluctuation of the world’s oil prices.
Vietnam Airlines, Pacific Airlines and other carriers could try their best to lower operating costs, saving fuel would not be easy, Nam said.
Vietnam Airlines deputy general director Minh said the government could help local airlines cope with the problem by increasing the ceiling of airfares instead of levying a surtax. The current ceiling airfare for a return ticket on Hanoi-HCM City route is 3 million dong (US$189). Under the airlines’ systems for domestic routes, 1 and 2 week advance bookings were discounted, but late or same day bookings were charged at ceiling rates.
He said Vietnam Airlines has already applied a surtax based on oil prices, the length of the flight and other factors.
He added surtax for a flight between Hanoi and Tokyo is US$88, with US$70 for fuel and US$18 for tax, while highest surtax, US$100, is levied on each ticket on flights to Europe.
The Ministry of Finance has cut the 5% import tax on fuel (currently 0%) but has not approved carriers’ proposals to levy a surtax on airfares or to increase the ceiling rate of airfares on domestic routes.