The flight license of Indochina Airlines (ICA) has officially been revoked by the Ministry of Transport, said a state official from the Civil Aviation Administration of Vietnam (CAAV).
The license withdrawal was executed because the private carrier has not operated for 12 months, said Dinh Thang, deputy head of the CAAV.
ICA, the first Vietnamese private carrier to obtain a license, in May 2008, was established by composer Ha Dung, who also acted as the airline’s general manager.
ICA began flying on November 25, 2008 with two leased Boeing 737-800 aircraft.
But it hasn’t flown since November 2009, thanks to financial problems stemming from the fact that ICA was asked by the local government to repay over $1.3 million in debt to the Ho Chi Minh City-based Viet A bank.
Potential Jetstar-VNA merger
In other airline news, the Ministry of Finance has proposed a plan to transfer the entire state capital in low-cost carrier Jetstar Pacific (JP) for its business restructuring, said the CAAV.
Accordingly, the budget airline may be forced to merge with the Vietnam Airlines Corp (VNA).
If this plan is adopted, VNA will become by far the largest Vietnamese carrier, with more than 90 percent of domestic market share.
The major stakes in Jetstar are held by the State Capital Investment Corporation (SCIC), with 69.93 percent; other foreign partners with 27 percent; and the Saigontourist Holding Co and Luong Hoai Nam, former general manager of JP, who hold the remainder of the shares..
Jetstar Pacific began in 2004 as Pacific Airlines Co, a carrier in which VNA held an 86 percent state, and was founded by Saigontourist.
After VNA's capital contribution in Pacific Airlines was transferred to SCIC, Pacific Airlines chose the low-cost airline model and became a rival of VNA in the domestic aviation market.
The turning-point for Pacific Airlines came in 2007, when Australia’s Qantas aviation group acquired a 27 percent stake in Pacific Airlines and changed the carrier’s name to Jetstar Pacific.
The remaining majority stake in Jetstar Pacific was then held by SCIC and Saigontourist.
Currently, together with VNA and JPA, the local aviation market has two other small carriers, namely Air Mekong, with four aircraft; and VietJet Air, which will start flights with its three airplanes in December.
So far, VNA still holds about 80 percent of the local market share while JPA holds over 17 percent, with the very small remaining market share belonging to newly-established carriers.
Both Air Mekong and VietJet Air are recent additions to the national airline scene and operate on a very small scale.
Ceiling airfares blamed for increasing losses
All Vietnamese airlines providing domestic flights, including Vietnam Airlines, Jetstar Pacific Airlines (JPA) and AirMekong, have reported financial losses, while placing the blame on the ceiling airfares set by the Ministry of Finance, according to Sai Gon Tiep Thi newspaper.
Fuel prices have increased by 40 percent so far this year, while the ceiling airfares have been adjusted very slowly.
Managers of the national flag air carrier VNA have said many times that the airline has been incurring losses with domestic flights, and that the losses can be only offset by profits made from international flights.
It has been reported to the CAAV that VNA forecasts a loss of around VND1.8 trillion for domestic flights this year.
JPA incurred a loss of $10 million, or some VND200 billion, in 2010.
The CAAV has recently submitted to the Ministry of Transport two new airfare solutions.
If the proposals are approved by the ministry, the ceiling level would increase by at least 50 percent from the currently applied level.
With an aim to protect consumers, Vietnam is still applying the ceiling airfare mechanism.
Meanwhile, airlines can offer different airfares after considering their business plans so as to obtain reasonable profits.
Experts argue that, while the low ceiling airfare is certainly a factor in the airline’s losses, the companys also need to reconsider their management skills.
Under current circumstances, the airlines which have better management methods would have bigger advantages than those with inferior operations.
For example Air Asia, a Malaysian budget airline, still makes profits while maintaining competitive airfares in comparison with other airlines.
Experts believe that the minimizing of services on flights, plus good expense management skills, have helped make the airline profitable.
A report released in October 2010 showed that the revenue per seat of Air Asia was $4.87, while the expenses were $3.52. Meanwhile, the figures for JPA were $4.84 and $5.07, respectively, according to the Centre For Aviation.