Nimble budget carriers feed Vietnam’s bull run

by ASSOCIATE EDITOR AND CHIEF CORRESPONDENT, TOM BALLANTYNE  

February 1st 2020

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Vietnam’s airline sector continues to boom, with privately owned carriers seizing more market share from government controlled Vietnam Airlines (VNA), the latest Civil Aviation Authority of Vietnam (CAAV) statistics reveal. Read More »

The full-service flag carrier’s market share has declined from 34.5% 12 months ago to 33.3% in December. Budget Jetstar Pacific, jointly owned by VNA and Qantas Airways, also lost market share with passenger traffic declining from 14.2% to 10.6% in 2019. Additionally, another VNA subsidiary, VASCO, experienced a drop in business, to 1.6% from 2% for the year to December 31.

Meanwhile, private sector carriers have continued their drive for dominance. Vietjet lifted its market share from 41.2% to 42.2% last year, the CAAV said. Start-up Bamboo Airlines, launched in January 2019, had secured 12.4% of the market by year-end. The hybrid carrier’s target is 30% of domestic air traffic.

Vietnam’s aviation industry recorded growth of 13% in 2019, the CAAV said. As a result, the industry is confronting the challenges other fast-growing aviation markets are experiencing, particularly airport congestion, lack of slots and ATM limitations.

Vietnam’s government is fast tracking modernization and expansion of airports and aviation regulatory reform. Last November, a prime minister’s decree raised the ownership limits of foreign investment in the Vietnamese air transport industry from 30% to 34%, with effect from January 1.

Vietnam National Administration of Tourism (VNAT) data has reported international visitors to Vietnam have increased from 4.25 million in 2008 to 15.5 million in 2018. Domestic tourists rose from 20 million in 2009 to 80 million in 2019. In the last ten years, total revenue from tourism has climbed more than ten times, from US$2.6 billion in 2008 to $27.1 billion in 2018. The sector accounts for 7.8% of Vietnam’s Gross Domestic Product (GDP).

Business travel has taken off, which has been a catalyst for airline expansion. Within a decade, the aviation sector has expanded by an average of 17.4% a year, more than double the 7.9% average across Asia, reported the International Air Transport Association (IATA).

The CAAV said Vietnamese airlines transported 50 million passengers in 2018, five times more than in 2008. By December 2018, the country’s aviation sector was being served by 68 foreign airlines from 25 countries and territories and five domestic airlines.

In the last ten years, aircraft operated by local carriers increased from 60 to 192. In its latest report, IATA ranks Vietnam as the fifth fastest growing aviation market in the world and the fastest in Southeast Asia. It is forecast to have a market of 150 million passengers a year by 2035.

Domestic carriers in the air right now are VNA, Jetstar Pacific, boisterous budget airline Vietjet, Bamboo Airways and Vietstar Airlines. The country’s aviation authorities and industry analysts are confident there is room for plenty more.

Vietnam has a population close to 100 million. It only needs to look at Thailand to glimpse what is possible for its tourism industry. Despite having 72% of Vietnam’s population, Thailand has four times more airlines and three times more international tourists than its neighbor.

The Thai kingdom has 13 scheduled airlines and 10 charter companies in operation. The number of airlines operating in Vietnam is much smaller than Singapore, Malaysia, The Philippines, Cambodia and Myanmar and five times less than Indonesia.

Kite Air, being developed by big local tourism firm, the Thiên Minh Group, has been approved and is expected to be flying next year, serving domestic routes and international flights through Indochina, Southeast Asia and North Asia.

While encouraging new operators Hanoi also has put safeguards in place to assure sustainable growth. A new carrier operating up to 10 aircraft will need minimum capital, including ownership capital and loans, of $13 million. Those with 11 to 30 aircraft will need $26 million.