Indochina Airlines’ ‘dream of flying’ turns to nightmare

Though Vietnam’s internal aviation market is always described as having ‘great potential,’ it is not so easy for airlines to enter that market, as the case of Indochina Airlines demonstrates.
A courageous airline
At a press conference late in 2008 announcing Indochina Airlines’ first commercial flights, serving Hanoi-HCMC and HCMC-Danang, General Director Ha Dung cheerfully revealed plans to offer flights from HCM City/Hanoi to Da Nang, Hue, Da Lat, Nha Trang, Phu Quoc island, Can Tho and Vinh City by 2010, and to purchase 10 Boeing 737-800s to expand the fleet.
The appearance of Indochina Airlines, coupled with continuous fare cuts by Jetstar Pacific, Vietnam’s self-proclaimed ‘budget airline,’ has energized the market. Vietnam Airlines, the ‘elder brother,’ also has had to slash airfare to retain passengers. Thanks to the increased competition, passengers have more choices and have more opportunities to fly.
It seems clear that the Civil Aviation Law enacted in 2006 and an implementing decree issued in May 2007 have created an open market and brought opportunities to investors. Soon after the new policy took effect, three private airlines applied for licences: VietJet Air (licensed in December 2007), Indochina Airlines (May 2008) and Mekong Air (October 2008).
However, if there were a ‘most courageous airline’ award, it would go to Indochina Airlines. The upstart carrier launched its first flight in November 2008, when both the global economy and national economy were in free fall.
VietJet Air will lose its license if it does not begin service by December 2009. Mekong Air has also been quiescent. However, both these enterprises are considered to have much better capability than Indochina Airlines.
Poor preparation
General Director of Jetstar Pacific Luong Hoai Nam says the internal aviation market has ‘huge potential.’ Nam points out that of Vietnam’s 86 million people, only one million people have yet traveled by air. Total annual carriage on domestic flights has barely reached six million passengers.
However, experts warn that investors should not only be very courageous, but also financially powerful to survive and develop in the internal aviation market. It seems that Indochina Airlines may have failed in the latter respect.
Indochina Airlines’ leadership doubtless hoped that a bouyant market would enable the airline to break even after a short period of operation. They must have counted on being able to raise more capital to the airline.
Stung by the global economic crisis, things turned out differently. The number of air passengers plummeted. A call for more capital would be futile, for investors have not dared to spend money in the crisis.
Indochina Airlines is deep in debt. Director Tran Huu Phuc of Vinapco, the fuel supplier to Indochina Airlines, said in mid September that the airline still owed accumulated debt of some VND20 billion ($1.2 million) to the company.
Still flying with just one airplane and one route, HCM City-Hanoi, Indochina Airlines bears a huge debt of 50-70 billion dong.
The Civil Aviation Administration (CAAV) in mid-September warned Indochina Airlines that it might lose the right to operate domestic flights next year if it fails to service its debt and prove its financial capability.
In a press release, Indochina Airlines has admitted that its revenues do not cover expenses. Meanwhile, it has to compete fiercely with ‘elder brothers’ in the market. National flag carrier Vietnam Airline has announced sharp airfare discounts up to year-end, cutting fares on some routes nearly as low as Jetstar Pacific.
CAAV Deputy Director Lai Xuan Thanh said that the economic downturn and the sensitive market have forced reconsideration of CAAV’s plan to develop airlines in Vietnam. Thanh said that the plan must be adjusted so it not only satisfies travel demand but also ensures the competitiveness of airlines in the market and prevents their collapse during crisis periods.
CAAV has recommended that no new licenses be granted before 2015 to ensure the sustainable development of the aviation market.