UPDATE 1-Vietnam to cut import duty on aviation fuel

Mon May 19, 2008 8:21am BST

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HANOI May 19 (Reuters) - Vietnam will reduce the import duty on fuel and oil products used in the aviation sector to 5 percent from 15 percent now to help domestic airlines avoid raising airfares, state media reported on Monday.

The new duty would come into force 15 days after the Finance Ministry's directive signed on Monday is published by the government's Official Gazette, the VN Express e-newspaper (www.vnexpress.net) reported.

Fuel costs, which account for a third of Vietnamese airlines' operating expenditure, have been driven up by rising world oil prices, while the government said it wants to keep prices of essential commodities including airfares unchanged through June.

The Finance Ministry was seeking government approval to delay a price rise of essential commodities such as electricity, coal, cement, steel and air tickets which were initially scheduled to start from July 1, the Labour Union-run Lao Dong newspaper said on Monday.

The government has been forcing businesses to keep prices unchanged to help ease pressures on the country's annual consumer prices, which jumped 21.4 percent in April, the sixth consecutive month of double-digit inflation.

Vietnam spent $3.76 billion to import 4.68 million tonnes of oil products in the first four months of this year, a surge of 70.2 percent in value from the same period last year while the volume only rose 8 percent, the government has said.

Vietnam Airlines, the national flag carrier, said last month that jet fuel prices in the first quarter of 2008 had already jumped 20 percent from its projected price of $90 per barrel for the whole of this year.

In early May Jetstar Pacific, formed from Vietnam's second-largest Pacific Airlines in a partnership with low-cost airline Jetstar of Australia's Qantas (QAN.AX) Airways Ltd, said it has delayed indefinitely the launch of two domestic routes due to higher fuel costs.

The problem with rising fuel costs faced by Vietnamese airlines is not unusual in the aviation sector.

Cathay Pacific Airway Ltd (0293.HK), Hong Kong's dominant airline, is considering cutting its money-losing routes amid soaring fuel prices, South China Morning Post said on Saturday, citing the airline's chief executive. (Reporting by Ho Binh Minh; Editing by Michael Urquhart)

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