Unraveling the causes behind sharp rise in airfare prices

Airfare prices in Vietnam have witnessed a sharp increase in 2024, reflecting a global trend of rising prices, according to a report by the Civil Aviation Administration of Vietnam (CAAV).

Since the beginning of the year, the average ticket prices, including taxes and fees for economy class, have significantly increased compared to the same period last year on several major routes.

Vietnam Airlines, Vietjet Air, Bamboo Airways, and Vietravel Airlines have all recorded increases ranging from 11 to 38 per cent depending on the route and airline.

Despite these escalations, a comparative analysis reveals that the price per kilometer on domestic routes of Vietnam Airlines remains competitive with airlines in the Southeast Asia region and notably lower than those in Europe and North America.

Moreover, a global trend report provided by FCM Consulting underscores the pervasive nature of rising airfare prices. By the end of 2023, international economy class airfares had surged by 17-25 per cent compared to 2019 levels.

Regions such as Asia, Australia, and New Zealand, Europe, South America, and North America witnessed increases ranging from 17 to 25 per cent.

Increased airfare prices in Vietnam are influenced by five primary factors, as detailed by the CAAV.

The substantial rise in fuel costs, particularly of Jet-A1 fuel, which as of April 26, 2024, hit over $100 per barrel in the Asian market, has significantly impacted operational costs for Vietnamese airlines.

As reported by the CAAV, the fuel expenses for these airlines in April 2024 surged by 56 per cent compared to December 2014 and 74 per cent compared to September 2015, resulting in a 38 per cent and 53 per cent hike in total operational costs for the respective periods.

Currency fluctuations also play a critical role, with the Vietnamese dong depreciating against the US dollar by 1,300 dong, a 5.6 per cent increase since 2019.

The reduction in the fleet size is another contributing factor. As of May 2, the total number of aircraft operated by domestic carriers stood at 199, marking a decrease of 32 aircraft from the previous year.

The recall of PW1100 engines by Pratt & Whitney for inspections and repairs has further strained the operations of some A321NEO aircraft.

Leasing costs have also risen sharply. The monthly rental rate for Airbus A321 engines escalated from $48,000-$50,000 in 2019 to $80,000-$100,000 this year.

Similarly, the leasing cost for Boeing B-787 aircraft has increased from $160,000 per month in 2022 to $370,000 per month this year.

Additionally, the domestic aviation market dynamics, including supply and demand imbalances, have affected ticket pricing. A reduced number of aircraft coupled with a rise in travel demand during holidays and festivals has led to price volatility. 

For instance, during the April 30 - May 1 holiday, reservation rates for many routes exceeded 90 per cent.

External factors such as manpower shortages following the Covid-19 pandemic and ongoing regional conflicts have also contributed to the rising costs.

FCM Consulting forecasts a 3-7 per cent increase in global airfare prices in 2024, with expectations for continued rises in subsequent years.