Why do airlines still say they are losing money despite sky-high ticket prices?

Despite the high ticket prices, airlines continue to announce business losses and cut flight routes because they believe that in the price structure, fuel accounts for 25-28% of operating costs, while other costs have also increased recently.

Increased by more than 87%, aviation businesses still make losses

On November 29, the General Statistics Office announced that the CPI in November 2023 increased by 0.25% compared to the previous month. Of the 11 main consumer goods and services groups, 8 groups increased in price compared to the previous month, of which the average price index of air tickets in the 11 months of 2023 increased by 87.29% compared to the same period last year, mainly due to the impact of airlines' costs on air transport prices.

The financial report for the third quarter of 2023 of Vietnam Airlines Corporation (VNA) shows that revenue reached VND 23,600 billion, an increase of 11% over the same period in 2022. In the first 9 months, the company recorded net revenue of VND 67,627 billion, an increase of 32.3%.

However, in a recent report sent to the Ministry of Planning and Investment , the State Capital Management Committee at Enterprises (CMSC) estimated that VNA could suffer a pre-tax loss of VND4,515 billion in 2023.

Ticket prices have increased but airlines continue to announce business losses. (Illustration photo).

Similar difficulties have occurred with Bamboo Airways. With constant changes in senior personnel, in less than a year, this airline has changed its head five times.

At the same time, the airline also continuously sent notices to agents about the temporary suspension of a series of international routes that the airline is operating and had expected, such as stopping flights to Australia, Germany, England, South Korea, Japan, Taiwan (China), Bangkok (Thailand), Singapore, etc.

For the domestic market, the airline has also reduced frequency on many main routes, and many niche routes have also temporarily suspended flights.

Explaining why ticket prices have increased but airlines are still complaining about losses, a VNA representative said that the average fuel price in 2023 compared to 2015 (when the current airfare framework was applied) has increased by 58.6%. Specifically, the price of jet fuel increased from more than 110 USD/barrel to more than 130 USD/barrel and the exchange rate also increased by about 10%.

“In 2023, jet fuel prices are set at around $112 per barrel based on Brent crude oil forecasts, but fuel price risks are highly unpredictable due to many uncertainties in the world’s macroeconomy, energy markets and geopolitics . A $1 per barrel increase or decrease in jet fuel prices can impact fuel costs,” said a Vietnam Airlines representative.

Faced with the reality of business losses, recently, the Vietnam Aviation Business Association (VABA) continued to propose solutions to remove difficulties for aviation and tourism and stated that "currently, air ticket prices are not enough to cover costs" when input fluctuations such as fuel prices, service prices at airports, air traffic costs have not decreased, and the ceiling price frame for air tickets has not been adjusted by state management agencies.

This has resulted in airlines not being able to achieve the best revenue results. Although airlines have cut costs to the maximum to maintain reasonable prices, revenue is not enough to cover costs…

There are still many empty seats, but ticket prices are still sky high.

According to a survey by VTC News on December 3, the lowest round-trip airfare for the 2024 Lunar New Year Giap Thin route from Ho Chi Minh City to Hanoi is from 6.5 million VND/passenger for flights late at night or early in the morning. The round-trip fare increases by about 7 - 10 million VND/passenger if flying during the day, during peak hours.

People's travel needs increase during the end of the year and Lunar New Year.

Similarly, other flights between Ho Chi Minh City - Vinh, Ho Chi Minh City - Thanh Hoa, Ho Chi Minh City - Hai Phong... have higher ticket prices than the Ho Chi Minh City - Hanoi route, with round-trip prices ranging from 7 - 12 million VND/passenger.

This price has not increased compared to the same period last year, but many people are still worried because there are still nearly 2 months left until the Lunar New Year holiday.

Regarding the number of Tet tickets supplied to the market, Vietnam Airlines said that to meet travel demand, VNA will provide 3 million seats on its entire domestic and international flight network from January 25, 2024 to February 24, 2024 (ie December 15 to January 15).

“Of the total 3 million Tet flight tickets provided across the entire domestic and international flight network with about 15,000 flights, there are 2 million domestic tickets with about 10,300 flights, 1 million international tickets with about 4,650 flights connecting the 3 cities of Hanoi, Da Nang, Ho Chi Minh City with provinces and cities across the country.

During the peak Tet period, Vietnam Airlines always ensures that the opening prices are within the price range regulated by the Ministry of Transport," said a representative of Vietnam Airlines.

Similarly, Vietjet also offers more than 2.5 million air tickets for Tet on routes from Ho Chi Minh City to Hanoi, Vinh, Thanh Hoa, Hai Phong, Da Lat, Phu Yen, Nha Trang, Phu Quoc, etc.

Bamboo Airways and Vietravel Airlines also provide about 700,000 to 1 million tickets across the entire flight network.

Informing VTC News, some airline ticket agents said that up to this point, the number of tickets sold has only reached more than 52% compared to the number of tickets that airlines offered to serve Tet demand, down more than 23% compared to the number of tickets sold at the same time in 2022.

“Current ticket prices are quite high, while the time to find and book tickets is still long, so consumers may have the mentality of waiting until closer to the return date to book tickets, or they may switch to other means of transport such as trains or private cars during Tet,” said Mr. Tran Duc Trung, a ticket agent on Tan Son Street, Tan Son Nhat Ward (Go Vap, Ho Chi Minh City).

However, if airfare is too expensive, people will turn away and choose other means of transport.

Responding to VTC News, Mr. Dinh Viet Thang, Director of the Civil Aviation Authority of Vietnam, said that this year, airlines opened Tet ticket sales quite early.

“The Civil Aviation Authority of Vietnam has requested airlines to report on market demand, operating plans, and demand for slot usage (take-off and landing times) at airports during the peak period of the Lunar New Year in 2024,” said Mr. Thang.

In addition, the Civil Aviation Authority also requested airlines to report plans to increase capacity on specific routes during the peak Tet period. The units compared and evaluated with the same period of Tet in 2023 and made recommendations related to increasing capacity on routes during this period.

“People’s travel demand during Tet often increases, concentrated on good flight days and times, leading to a shortage of tickets and higher ticket prices. Air transport during Tet is always unique and only crowded in one direction, with few or even no passengers in the other direction,” Mr. Thang commented.

Mr. Thang said that the ticket prices offered by the airlines are still within the regulated ceiling price range. When people's travel demand increases, the airlines will certainly increase flights to maximize the number of passengers.

“The Civil Aviation Authority also closely monitors and requires airlines to provide customer booking data. When the number of passengers reaches 70%, the Authority requires airlines to study and propose increasing flights to exploit and serve the travel needs of the people.

When the number of flights increases and the supply increases, the ticket prices will also have to be adjusted according to the market. The Department cannot require airlines to provide a huge supply, and if they cannot do so, it will be a waste,” Mr. Thang affirmed.

PHAM DUY

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