On January 24, the Ministry of Finance (MOF) decided to raise the ceiling airfare level to VND1.7mil from VND1.5mil.

Vu Cong Chinh, Deputy Head of the Price Control Department under MOF, said the decision aims to help air carriers diversify their prices.

He said the Ministry did not approve the two airlines’ suggestion to raise the ceiling level to VND2mil, but did think a slight increase was in order.

Mr. Chinh stressed that the rate rise will only be valid as of March 1, specifying that airfare will see no changes during the Tet holiday. In Vietnam, Tet is a very ‘sensitive’ time, and the Government and companies are doing their best to not shock the market in any way.

The two airlines applauded the decision. Nguyen Ngoc Minh, General Director of Vietnam Airlines, described the move as a step forward in the process of loosening Government control over the airline industry, and progresses towards the eventual goal of aviation liberalization.

Representatives from Vietnam and Pacific Airlines said the decision will help them design different price levels and commensurate services benefiting a diversity of passengers.

Travel firms, on the other hand, are not happy. Higher airfare will force travel firms to increase their tour fees. However, as for signed contracts; they are stuck with the agreed upon prices and will resultantly incur losses.

Vo Anh Tai, Travel Director of Saigontourist, said that he heard the news the day after MOF released the decision. He said travel firms have not yet had time to respond to the Ministry’s action.

Mr. Tai said travel firms will have to re-negotiate tour fees with foreign partners, which, he says, is very difficult.

He also said higher airfare adversely impact inbound and domestic tourism.

A representative from Lua Viet Travel Company shared the same view, saying that he does not know how to explain the price increases to foreign travelers who booked tours six months ago. He said higher airfares and higher tour fees will hurt competitive ability.

The representative said that in order to attract more tourists, Vietnam should think of reducing tour fees instead of increasing them. He said the tourism industry needs cooperation from other Ministries and branches to develop, while MOF and airlines are not concerned with how badly the increase will influence tourism and other related services.

However, Tran Tuong Huy from Fiditour said the problem may be not as serious as travel companies think. In principle, travel firms only sign contracts with foreign partners if they know for sure they can book tickets from airlines. He said that even if airfares increase, travel firms can still buy tickets at the previous price levels.

However, Mr. Huy also thinks Vietnam’s tourism will be influenced by the airfare increases.