Domestic price war hurting Vietnam's Airline industry
HANOI - Unhealthy competition is harming Vietnam's domestic airline industry, Vietnam Airlines (VNA) and Pacific Airlines, according to Deputy Minister of Transport Nguyen Tien Sam.
Sam, who is also head of the Civil Aviation Administration of Vietnam (CAAV), said Vietnam Airlines and Pacific Airlines had recently vied to reduce fares with resulting losses for both.
According to current regulations, the Government had established a ceiling for the price of flights for both airlines, which are allowed to reduce fares if such cuts do not harm their financial status.
"The recent race is an unhealthy competition because it had damaged both, resulting in an unnecessary dispute," Sam said. "The national carrier had also faced losses on domestic routes after cutting fares of these routes." Sam, however, said the aviation authority would not directly interfere in the two companies' internal affairs, but would advise them to discuss measures to settle the problem.
"We don't want to be involved in company matters, only when they show signs of violating legal regulations," Sam said. "This is their own issue, but we would remind VNA to consider this." Sam admitted that in the past VNA held a monopoly of providing ground services, such as supplies of in-flight rations and petrol products.
But thanks to new regulations, the monopoly had eased significantly.
For example, the Military Petroleum Company now is allowed to import white petrol to supply the aviation industry, and Pacific Airlines is allowed to hire any company to provide in-flight rations and other services.
Pacific Airlines last week sent a complaint to the Ministry of Finance and the CAAV accusing VNA of breaching the Law on Competition.
But the latter denied the former's accusation and said it was without foundation.
A Pacific Airlines representative said the company had always been blocked by VNA, citing the supply of bus service at airports as an example.
He said Pacific Airlines wanted to have its own buses to transport its passengers and cargo to planes.
But VNA had not given it permission to do so and said there were a sufficient number of buses for both companies. However, Pacific must use VNA's buses at high rates.
VNA's fare reductions on some domestic routes including Hanoi - Ho Chi Minh City, Hanoi - Da Nang, and Ho Chi Minh City - Taiwan had created difficulties for Pacific Airlines, he said.
Pacific Airlines' executive director Luong Hoai Nam also said VNA had taken the lead in reducing fares, forcing Pacific to cut its fares.
As a result, increased competition had contributed to a deteriorating financial situation at Pacific, Nam said.
"Fare reductions have created losses on Hanoi-Ho Chi Minh City flights in 2005, of up to VND60 billion (US$3.75 million), he said.
Pacific Airlines is still in the middle of its re-structuring plan and the price war has adversely affected planning.
"VNA commands an 85 per cent stake of the local aviation market. According to the Law on Competition, the carrier has to be monitored by the law because it is holding more than a 30 per cent market share and dominating the market," Nam said.
VNA deputy general director Pham Ngoc Minh said: "Pacific should not proceed with any legal action against VNA because the former launched promotional programmes one week before us." "In other words, VNA has been forced to make fare reductions," Minh said. "We once advised Pacific managers not to implement fare reductions because we found it dangerous, but they did not agree with us and pursued their own option."
Another VNA official, Trinh Van Quang, said the national carrier did not violate the competition law, as it had only diversified the kinds of fares offered (like lower fares for flights after 9 pm), but did not reduce the price of all of its fares.
Vietnam News Agency - May 3, 2006.
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