Vietnam’s airlines trying hard to fly

      Like their competitors worldwide, Vietnam’s air carriers have been impacted by the global economic crisis. They are struggling to overcome difficulties but few optimistic signs have been found.
According to the International Air Transport Association, thirty airlines in the world were bankrupted by soaring fuel prices in 2008. The ‘shock’ of the fuel price increase was not yet over when economic recession and the H1N1 flu pandemic fell on the industry. Private airlines in Vietnam, born at difficult times, are struggling to survive infancy.
“Burning money” while waiting for their times
The operating license that the Civil Aviation Authority of Vietnam (CAAV) granted to VietJet Air (VJA) will expire on December 20, 2009, two years after it was issued, if VJA does not provide flights.
VJA is was licensed in 2007 as the nation’s first privately-held airline. In its business plan, the airline proposed to provide flights beginning in late 2008 on Hanoi-HCM City-Danang routes and then reach out to short-distance international flights to Bangkok, Singapore, Hong Kong and South Korea. However, the airline has failed to fulfill the plan, buffeted by the fuel price ‘shock’, global economic recession and the H1N1 pandemic.
Vo Huy Cuong, a senior official of CAAV, says that if VJA does not fly before the expiry date, VJA will have to begin procedures all over again to get an operating license. It took VJA a full year to complete formalities to obtain its present licence.
Born a year later than VJA, Indochina Airlines (ICA), owned by the well-known musician Ha Dung, became the first privately held airline in Vietnam to carry passengers. ICA is in big financial difficulties just half a year after its first flight. The airline is 50 billion dong in debt, mostly for fuel bills.
An industry expert said that airlines always requires huge start-up capital (the required legal capital is 200 billion dong). As investors can make profit or losses very quickly, the business is to be very attractive to those investors who have powerful financial capability. However, timing is critical to success; wise investors join the market at the most suitable moment.
No positive signs yet
Vietnam Airlines achieved just 42 percent of its 2009 business plan in the first half of the year. Its international passenger volume decreased by nearly 12 percent, and seat occupancy rate fell to just 36.5 percent on international routes.
Throughout Vietnam Air’s system of domestic and international flights, the occupancy rate was 72.5 percent. Thus, satisfactory earnings from the domestic market kept up revenues, but the national flag carrier’s growth rate has clearly decreased sharply if compared to previous years.
Upstart budget airline Jetstar Pacific JSC (JP) has reported a growth rate of 30 percent. This year, however, JP’s growth rate is only half that of the same period last year. Prior to 2008, JP was losing money at the rate of nearly one billion dong (about $56,000) a day.
The difficulties have forced airlines to redraw business plans to survive and develop in difficult times. Vietnam Airlines scenarios aim at greater flexibility in doing business. JP has cut poorly patronized flights and is concentrating on competing on its more profitable routes rather than opening new ones.
Jetstar Pacific’s predecessor was Pacific Airlines, founded in 1991. In 2005, Pacific registered the brand name VietAirways while thinking of restructuring its operations. Instead, however, Pacific Airlines sold 30 percent of its shares to the Australian carrier, Qantas, and became Jetstar Pacific. VietAirways remains as a ‘pocket asset’ that would allow the company to start business again if the hookup with Qantas goes sour.
IATA said that normal conditions – four percent annual growth – are not likely to recur in the world airlines industry before 2011.
Vietnam Airlines has found the means to increase flights on its routes to France and Germany, and is seeking permission from French government agencies to double its frequency from Hanoi and HCM City to Paris beginning in October. It has also contributed capital to a Cambodian national airline which will fly from August 2009.