The Finance Ministry has issued a decision that lowers the current capon domestic economy class airfares to 4,250 VND per passenger perkilometre from the current 5,000 VND (23 US cents) from January 1, 2015.

Announcing the decision, national carrier Vietnam Airlines said on December 19 that the cap did not include value-added tax.

Loweringthe cap by 15 percent would not impact current air ticket price, itsaid. The Finance Ministry's decision follows a suggestion made by theCivil Aviation Authority of Vietnam (CAAV).

The Decision(2967/QD-BTC) mentions that the cap was calculated based on the price of130 USD per barrel for Jet A1 fuel with zero percent import tax.

However,the price for Jet A1 (including seven percent import tax) was only90.63 USD per barrel as of December 2014. Therefore, the petrol's costhas dropped by 43.4 percent against the maximum price considered in theministry's decision. According to the CAAV, fuel accounts forapproximately 39.5 percent of an airline's overall costs. The fall inpetrol prices, therefore, would bring down airlines' total costs by 17percent.

The Finance Ministry has also ordered CAAV to set faresfor different rely on the new cap to set fares for different distances:under 500 kilometres, between 500 and 850 kilometres, between 850 and1,000 kilometres, between 1,000 and 1,280 kilometres, and above 1,280kilometres.-VNA