Why are air fares too high for Vietnamese people?

When I was CEO of Bamboo Airways, I always thought that Vietnamese air tickets were cheap compared to those offering similar services in more « developed » countries.

But recently, when I went online to book a flight from Australia to Vietnam, and I had a second thought about the matter.

From the perspective of a customer, I suddenly wanted to find answers about the differences in airfare prices in Vietnam based on per capita income, compared to some countries in the world.

Let’s take as an example of the average price of the most popular flight duration in the world – which is about an hour. For example, in Vietnam it will be Hanoi – Da Nang, in the U.S. it will be Los Angeles – San Francisco or Atlanta – Miami, in Australia it will be Melbourne – Sydney, or close to us in terms of average income is Thailand, the Bangkok – Phuket route.

The results of my ticket price search on the morning of March 10 were as follows:

– Hanoi – Da Nang (1 hour 20 minutes), the cheapest fare is Vietjet’s US$141

– Bangkok – Phuket (1 hour 30 minutes), the cheapest is Thai Asia’s $94

– Miami – Atlanta (1 hour 50 minutes), the cheapest is $70

– Melbourne – Sydney (1 hour 20 minutes), the cheapest is 114$

I continued to look at each country’s GDP per capita, according to World Bank data in 2022: Vietnam’s is $4,163, Thailand’s $6,910, the U.S.’s $76,330, and Australia’s $65,100.

So with the same flight route, it takes Vietnamese people up to 12 working days, Thais 5 days, Americans 0.3 days and Australians 0.6 days.

Thus, air ticket prices are too expensive compared to the income of Vietnamese people.

For the same question about airfares, I have thus come up with two completely different answers, depending on my position, as an aviation businessman, and as a customer. The conflict comes from the reality that even though airfare prices are quite expensive compared to people’s income, airlines can still make losses.

So, how to solve the problem of making the airline industry profitable and airfares more accessible to people?

Aviation is a very complex field, requiring huge cost management related to flight safety (hundreds of people’s lives), finance, service, sales, operations, etc… To form an airline, you will have to comply with hundreds, even thousands, of world aviation safety conditions. And to meet those safety standards you have to be very careful with each single penny spent. Every service, no matter how small, multiplied by thousands or millions of passengers, becomes a huge number. Therefore, airline costs operation takes a huge amount of money, not to mention risks such as epidemics, natural disasters, or enemy attacks that cause planes to ground en masse.

In that general context, what contributes to making airline ticket prices in Vietnam too high compared to the average income per capita is that pilot and flight attendant salaries must follow the general income level of this industry in the world, to be able to attract foreign workers, while in a situation where these specific workers are always in short supply in Vietnam. The salary of a pilot in Vietnam can be 20-30 times the average income per capita. It’s a similar situation for technicians’ and flight attendants’ salaries.

All costs from personnel, technical maintenance, aircraft rental costs have to follow the USD exchange rate and be on a common level with advanced countries. This is the main and biggest reason people in developing countries have to accept airfare prices many times higher than their per capita income.

The government, specifically the Ministry of Finance and the Ministry of Transport, is solving the problem mainly by imposing a ceiling price on air tickets, and adjusting this price list when necessary.

In my opinion, there are a few issues that can be resolved immediately to eliminate the expensive airfare price problem:

Firstly, the government needs to open up the aviation sector. Opening up and creating a fair competition mechanism are the first conditions to bring prices back to their true nature. Thailand has nearly 72 million people and has nearly 10 airlines, while Vietnam has 100 million people but actually has only three main operating airlines.

Procedures for establishing an airline in Vietnam are some of the strictest in the world. After Vietravel Airlines (launched in 2019), up to now, no more aviation projects have been formed or licensed. If it is possible to create an open business market for all businesses to participate, and there could certainly be many business models, providing many choices for customers, creating opportunities for ticket prices to go down.

The second area that needs to be opened up is aviation infrastructure investment, instead of leaving it all to the Vietnam Airports Corporation. For each ticket sold, airlines automatically have to pay ACV a fee. In addition, airlines still have separate ground service contracts with ACV, which means the same fee for the same service is being collected twice. That is just one example among many overlapping taxes and fees – a factor pushing up ticket prices.

When I was working in the airline industry, I always looked for ways to reduce flight ticket prices, but there were many service fees that were almost impossible to negotiate and were imposed by the monopoly mechanism.

The third problem is human resources. To solve the problem of high personnel costs, the ability to self-train pilots must be addressed. To do this, it is necessary for the government to allow the opening of basic pilot training to the private sector. Most basic pilots currently have to be trained abroad, both bleeding foreign currency and increasing personnel costs. Creating a domestic supply of human resources (from pilots to technicians, coordinators…) could reduce huge personnel costs for airlines.

The final issue, in my opinion, is that there should not be a floor or ceiling price for air tickets. Let the market, airlines and consumers decide how many « working days » they will spend on an air ticket. But the market can only do its job if the operator boldly unties the monopoly in all aviation fields, strengthens management and supervision capacity instead of controlling it.

If changes are not boldly adopted, it will be difficult for the aviation industry to develop, and the opportunity to fly – that is, to use a great transportation invention from the last century – is still a dream for many Vietnamese people in this century.

Par Dang Tat Thang – VnExpress.net – March 19, 2024