June saw the expiration of the aviation license for Vietnam’s first private airline, Vietjet Air.
According to the report by the Ministry of Transport submitted to the Prime Minister earlier this year, the aviation license of Vietjet Air has already expired as it has not come into operation, despite having been set up for 2 years.
In May 2011, the Malaysian-based budget airline AirAsia signed an agreement to buy 30 percent of Vietjet Air’s shares and declared that the first flight would take off in the next 3 months. However, to date, Vietjet Air has not shown any movements that the company will go into operation.
An anonymous source from Sovico Holdings – the company holding the majority of Vietjet Air shares – said that there is nothing new in the situation of Vietjet Air. Meanwhile, a senior officer at the Civil Aviation Administra- tion of Vietnam (CAAV) said that AirAsia may not be making its capital injection into Vietjet Air any longer, as it has been unable to reach agreement with Vietjet Air on using a new logo and the brand “Vietjet AirAsia”. The delay of Vietjet Air’s launch, some three years after having being granted permission, has shown that Vietnam’s aviation business is not easy for private airlines.
There are currently eight airlines in Vietnam, including Vietnam Airlines, Jetstar Pacific, VASCO, Vietjet Air, Indochina Airlines, Air Mekong, Trai Thien Air Cargo and Vietstar Air – a new airline established last month (May 2011). Of those, only four are actually operating, Vietnam Airlines, Jetstar Pacific, VASCO and Air Mekong. Indochina Airlines, after a short time in operation, fell into debt and is now prohibited to fly.
Mr Vo Huy Cuong, head of CAAV’s Air Transport Department, commented that “customer loyalty” to the Vietnam Airlines brand is one of the major obstacles for new airlines entering the market. Vietnam Airlines accounts for over 80 percent of the domestic aviation market share, especially on some “golden routes” such as Hanoi – Ho Chi Minh City, Hanoi – Danang, Ho Chi Minh City – Danang.
Over the past two years, Vietnam Airlines has continued to open more new routes from major cities to provinces with tourist potential such as Hanoi – Quang Binh and Hanoi – Vinh. The expansion of Vietnam Airlines is a big challenge to all other airlines.
Even Jetstar Pacific, an airline with over 70 percent of its shares held by the State, proved to be weaker than Vietnam Airlines. At the end of May 2011, Jetstar Pacific had to seek the intervention of the Ministry of Transport to continue being provided with fuel by Vietnam Air Petrol Co Ltd (Vinapco) as the airline had not paid its fuel debt of about VND180 billion (approximately US$8.6 million).
Vinapco also said that to date, they had not received back from Indochina Airlines their loan of about US$1 million. Another private airline, Air Cargo Trai Thien, seemed to disappear from the market almost as soon as it had received its aviation business license.
Mr Cuong said that the CAAV has been unable to make contact with the managers of the two airlines – Indochina Airlines and Trai Thien Air Cargo.
This bleak situation in the operation of private airlines seems particularly odd given the increasing demand for air travel and the current “overloading” of Vietnam Airlines. However, some experts in the industry believe that the difficulties of private airlines are understandable.
Although Vietnam is forecast to be the fastest growing aviation market in the world in volume of passengers and cargo in 2020, the current volume of 14.1 million passengers and 176,000 tons of cargo is still quite modest. Vietnam Airlines, with their expansion of routes and purchase of more planes, can easily meet most of that demand. As a result, the share of the pie remaining for other private airlines is just too small.
Mr.Doan Quoc Viet, Chairman of Air Mekong, also admitted that private airlines find it hard to compete with Vietnam Airlines.
Being the only private airline operating at present, Air Mekong has chosen a strategy to aim at those routes that Vietnam Airlines doesn’t pay much attention to, such as Hanoi – Phu Quoc, in addition to exploiting other “golden routes”. “In the current situation, only focusing on competing with Vietnam Airlines on the “golden routes” would be virtually impossible,” added Mr. Viet.
Despite having been in operation more than half a year since starting to build their brand, Mr. Viet believes that Air Mekong may still face losses during its first two years, or even longer.
In order to reinforce its strength, Air Mekong has been waiting for Government permission to allow the Skywest Corporation to buy a 30 percent stake. It is now receiving help from Skywest in leasing aircraft and pilots. Mr Viet concluded that it is difficult for a private airline to survive in Vietnam’s market if it does not have real potential.