Growing pains have come to the Vietnamese market, which has long been seen as one that will experience strong growth in the coming years.
The market has already been growing steadily, at double-digit percentage rates over the past decade, but national carrier Vietnam Airlines is now starting to feel the pressure from new competition and increasing costs. It has traditionally posted consistently healthy earnings but suffered a loss in the first half, due largely to increased fuel prices.
The local market is particularly price sensitive and increases in airfares tend to affect demand quickly. The government also regulates the market heavily, meaning the carrier is not able to increase fares without first securing approval.
Start-ups are also feeling pressure from increased costs. The most promising entrant, VietJet, was to have launched before year end but it has pushed this back to some time next year due to high fuel costs. General director Nguyen Duc Tam says: "The airline industry is in turmoil because of the escalating fuel price. To be profitable, airlines must raise fares or apply fuel surcharges to cover deficits. With a new airline like us, a competitive airfare is quite essential yet we couldn't be profitable when input expenses were too high."
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He adds: "The inflation is also the reason, as our revenue is calculated in [Vietnamese dong], yet there are many other expenses that we have to pay in [US dollars]. Therefore, we need more time to reconsider our business strategies at this point and prepare the best resources to make sure everything [goes] right for our first flight."
Several other players are also seeking to launch despite tougher market conditions. These include Air Speed Up, which earlier this year secured a business licence allowing it to apply for an air operator's certificate, and Mekong Air, which recently put in its initial paperwork.
Mekong Air is unlikely to receive approval any time soon, however, as the government now has a moratorium on issuing any new licences. This is also thought to be affecting Malaysian low-cost carrier AirAsia, which wants to set up a Vietnamese associate carrier through a joint venture with a local company.
Apart from Vietnam Airlines, the country's other airlines are part-Qantas Airways-owned Jetstar Pacific, as well as smaller Vietnam Air Service, which operates limited domestic services.
Another Asia-Pacific market facing turbulence in its air transport market is Thailand: flightglobal.com/thailand
Source: Airline Business
