Microeconomics assignment subject air ticket ceiling price in vietnam in 2022

Analyze the impact of the airline ticket price ceiling policy on the country's aviation market.. The purpose of this policy is to prevent airlines from selling tickets at prices that ar

UNIVERSITY OF ECONOMICS

HO CHI MINH SCHOOL OF TOURISM UEH

UNIVERSITY MICROECONOMICS

ASSIGNMENT SUBJECT: Air ticket ceiling price in Vietnam in 2022

Lecturer : Nguyễn Hữu Lộc Course: Microeconomics Class code: 23C1ECO50100174 Class: TS0002

Student: Phạm Minh Thảo

Student code: 31231023287

TABLE OF CONTENT

Overview of Vietnam's air ticket ceiling price policy in 2022

Il Analyze the impact of the airline ticket price ceiling policy on the country's aviation

market

1 When the market competes freely without influence from the government

2 The aviation market is influenced by government policies

lll Lessons and evaluation of the Vietnamese government's air ticket price ceiling policy in 2022.

Overview of Vietnam's air ticket ceiling price policy in 2022

In the context of the recent COVID-19

pandemic in 2020 and 2021 and a series of sanctions

issued by the United States and Western countries

targeting Russia during the war between Russia and

Ukraine, causing an increase in oil prices globally,

causing fluctuations in Vietnam's aviation market The

Vietnamese government has imposed a ceiling price

on air tickets The purpose of this policy is to prevent airlines from selling tickets at prices that are too high con

to the market price, causing injustice to people, and to support people with low or average incomes to be able to service flight operations and restrictions affecting the development of the domestic tourism industry

According to statistics, jet fuel prices (Jet A1) continue to skyrocket in 2022, at —_ jn biéngiannhién liệu bay JetA1 từ 2005 đến 2022 (USD/thùng)

average for the whole year of 2022, the

Quy định về giá trần vé máy

price of jet fuel will reach 130 USD/barrel, 20% bay ra đời khi giá xăng ở

khoảng 80 USD/thùng

an increase of about 80% compared to the

average level in 2021 In addition, the USD

exchange rate will increase by about 9% 190

compared to VND in 2022, also causing

pressure This is a major financial source

for airlines, as this is the most commonly ° :

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used foreign currency to pay operating

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rental, and purchase, and outsourcing

passenger services

According to a report from the Vietnam Aviation Administration, in 2022, the total Vietnamese avi: market will reach 30.6 million passengers, down 55% compared to 2021 Revenue of airlines will reach 40,700 VND, down 66% compared to 2021 %

However, this policy faces a lot of controversy from low-cost airlines and consumers Low-cost airlines that imposing floor prices will eliminate fair competition in the market, hinder the creativity and innovatiol

airlines, and violate competition laws Consumers are also concerned that imposing floor prices will increase prices, eliminate opportunities to hunt for cheap tickets and reduce their choice According to a report fro Vietnam Aviation Administration, in 2022, the total Vietnamese aviation market will reach 30.6 million passer down 55% compared to 2021 Revenue of airlines will reach 40,700 billion VND, down 66% compared to | Typically, Vietnam Airlines, according to its 2022 financial report, achieved consolidated revenue of nearly 7’ billion VND, of which revenue from transportation activities was nearly 51,500 billion VND, larger than both 2 and 2021 combined and equivalent to equivalent to 70% of pre-epidemic level due to the rebound from dc aviation

Il Analyze the impact of the airline ticket price ceiling policy on the country’s aviation

market:

-The Vietnamese government setting a ceiling price for airline tickets is a wrong move and a failure for the aviation market and the country's economy Because:

+ Impact on market supply and demand

1 When the market competes freely without influence from the government ( figure 1):

FIGURE 1

A promising and desirable market is when the marketІ

competes freely and without interference from the government

As a matter of necessity, when airline ticket prices are high,

customers will tend to consider, buying less and be more willing

to pay Instead, they will choose other means of transportation

Z-*auilibrium

*

On the contrary, when ticket prices drop to a low levelP

the number of customers willing to pay will increase, thereby

increasing the demand for airline tickets For the selling side

(supply), airlines will sell more air tickets when the price is high

' '

and less when the price is low Because of this, it will create an Q* Quantity

opposition between the supply and demand sides At this time,

the supply and demand curves intersect at one point, which is the equilibrium point of the aviation market, passengers and airlines are satisfied What you make of the aviation market becomes desirable and promising

2 The aviation market is influenced by government policies ( figure 2) :

When price ceilings are applied, airfare

prices will not be free to change according to the Price

market's supply and demand mechanism but must

comply with prices set by the state If the price

ceiling is higher than the market equilibrium

price, there is no effect on the supply or demand

for airline tickets, since airlines can still sell

tickets at the equilibrium price or lower "

However, if the ceiling price is lower than the

RICE CEILING}

market equilibrium price when air tickets

decrease, it will stimulate the demand of a large

number of people to buy air tickets At this point,

the new ticket price will intersect the demand

curve at a point where the quantity of tickets is

higher than the quantity of old tickets On the

other hand, the new ticket price will be

detrimental to airlines, businesses will have

FIGURE 2

Supply curve

|

| Demand curve

|

Quantity Quantity Supplied Demanded Quantity of Product X

shortage

increased costs due to fuel and staff, forcing airlines to reduce supply to a level lower than the previous equi output , because airlines have no incentive to produce more, a shortage of airline tickets arises and the supply s distribute scarce airline tickets to a large number of potential buyers Discriminating based on seller bias is ineft This will lose the effective allocation of resources in the aviation market, and cause social waste Therefore, it rr more difficult for low- and middle-income people to buy airline tickets than before

+ Impact on the interests of related parties: The air ticket price ceiling policy can bring benefits to some parti can also cause damage to some other parties Specifically, consumers who can buy airline tickets at cheaper pl benefit from this policy, because they can save costs and increase consumption benefits However, consum cannot buy airline tickets due to shortages will lose benefits because they cannot use airline services accordinc needs In addition, airlines will also be harmed by the price ceiling policy, as they will not be able to sell ticks

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prices that reflect reasonable production costs and profits, especially in the context of rising oil prices This will the ability of airlines to operate and develop, as well as service quality and flight safety The state will also lose i from airline ticket taxes due to reduced ticket prices and may have to spend a lot of money to support airli

overcome difficulties

+ Impact on air travel stimulus: The air ticket price ceiling policy may have a negative impact on the econ air travel stimulus plan after reopening Since airfare is an important factor influencing people's travel decisi airfare is limited to a low level, there will be no incentive for airlines to expand flights flights, enhance promot programs, and combine with tourism units to create attractive service packages for customers This will | opportunities for people to access aviation services, and affect the recovery of the tourism industry aft pandemic

Ill Lessons and evaluation of the Vietnamese government's air ticket price ceiling policy in 2022:

- One of the Ten Principles of Economics discussed in Chapter 1 is that markets are usually a good organize economic activity This principle explains why economists usually oppose price ceilings and price floo economists, prices are not the outcome of some haphazard process Prices, they contend, are the result of the n business and consumer decisions that lie behind the supply and demand curves Prices have the crucial job of k supply and demand and, thereby, coordinating economic activity When policymakers set prices by legal decre

obscure the signals that normally guide the allocation of society’s resources

- In Southeast Asia, in tourist-attracting countries such as Thailand, Singapore, and Malaysia, airlines also c freely, with ticket prices determined by the market and self-adjusting according to supply trends and dem each time.” The application of floor prices or ceiling prices will eliminate the market economic factor in its nature and will not bring benefits to the professional management and service development of the compar price frame will also eliminate competition, causing airline tickets to stay at the same level, gradually elimir the dynamism and diversity of the aviation industry Consumers will also lose the opportunity to have more st options Low-cost airlines” (Low-Cost Airlines)

>» The lesson learned is that intervention is sometimes not as effective as the free market There neec flexibility in deciding policies, depending on opportunities and objective realities Policymakers shi make decisions flexibly, avoiding unnecessary rigidity

- To overcome the negative impacts of the airline ticket price ceiling policy, the following solutions are needed:

¢ Enhance competition in the aviation market: There should be policies to encourage competition in the aviation

market, such as reducing administrative procedures and creating conditions for new airlines to enter the market

¢ Support airlines: The state needs to have policies to support airlines, such as reducing taxes, and interest rates, an

reducing airport fees, to help airlines overcome difficulties

¢ Encourage public investment in aviation infrastructure, upgrade, expand, and improve airports, improve service

quality and flight safety

« Encourage public investment in aviation infrastructure, upgrade and expand airports, and improve service qual flight safety

* Promote the development of the domestic market, and create conditions for people who need to travel by air, such as

enhancing propaganda, promotions, cooperating with tourism partners, and improving service quality and health

* Create conditions for airlines to compete fairly, diversify products and services, apply new technology, improve

operational efficiency, and reduce costs

¢ Participate in regional and international cooperation agreements on aviation, expand export markets, and take

advantage of opportunities from free trade agreements

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MICROECONOMICS 1

ASSIGNMENT

SUBJECT: Air ticket ceiling price in Vietnam in 2022

Lecturer : Nguyén Hitu Loc +

Course: Microeconomic @|

Class code: 23C | ECOS0100174 Class: TS0002

Student: Phạm Minh Tháo Student code: 31231023287

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