Vietnam private Aviation: Encountering Price storm

 Whether it is true that Vietnam economy is showing revival signs after a long quiet time since lots of enterprises are racing against each other to apply for licences to establish private airlines. However, recently, Vietnam aviation has had two pieces of bad news: Jetstar Pacific will temporarily stop exploiting its Ho Chi Minh City - Nha Trang route from September 5^th and VietJet Air continues to have their key personnel sacked.

Particularly, Jetstar Pacific will have to get rid of Ho Chi Minh City – Nha Trang route since this route is not effective due to high fluctuations in petrol price and to focus its air crafts on exploiting other effective routes. Being unable to pay salary to staff after delaying estimated flight plan from December 2008 to the next mid-year, VietJetAir has resorted to sacking more than 25 key officials three times. In late July 2008, VietJetAir resorts to getting Mr Brian Presbury who has many experiences working in airlines market unemployed after less than two months since his appointment to the company’s operating manager position. The flight operating manager and at least eight other staff at key positions have also had to “quit” the company. VietJetAir’s largest downsizing is on recent August 1st. Some public media means believes that 14 key staff gets unemployed in this downsizing. Those include managers in charge of marketing, technology and human resource. One of the fourteen staff forced to give up their jobs tells us that they do not receive the decision until 10.30 A.M on August 19^th and just have a little bit more than seven hours to hand over their on going tasks. VietJetAir’s sacking key staff makes many ones working in this business area wonder if this airline will have enough staff to operate their flights in April 2009 as planned? Almost all the ones who get unemployed are competent since they get selected from other airlines and organisations operating in the same field. As such, it is possible that VietJetAir also does not want them to leave but unable to pay them after their flight plan being delayed.

 

According to information from Vietnam Airlines Bureau, Vietnam’s first private airlines, VietJetAir (VJA) recieves its business licence since December 2007. This event draws special attention from the public who are expecting that the operation of this airline would help diversify and enhance competitiveness of domestic airline transportation market. Not long after that, the second private airlines, Air Speed Up (known as “Tang Toc airlines” in Vietnamese), is also granted with its operating licence. Mekong Air (with Ha Long production investment and development company as chief investor) and some other individuals also submit their application forms to Vietnam Airlines Bureau for establishment of their own airlines…

 

During the past time, the atmosphere of the airlines area seems to be blown up with various foreign airlines applying for opening flight routes to Vietnam. They include Nok Air (Thailand), Hong Kong airlines, Lion Air (Indonesia and Cebu Pacific (the Philippines), etc.

 

As regulated by Vietnam Airlines Bureau, within two years, if the enterprise does not implement its flight plan, its licence will be drawn back. Air Speed Up is busy having its name changed, Nok Air stops its Bangkok – Hanoi route, Cebu Pacific also abolishes its Manila – Hanoi route, etc.

 

According to Mr Vo Huy Cuong, Head of Airlines Transportation (Vietnam Airlines Bureau), “Small Taiwanese airlines like Evar Air, China Airlines, Unie Air and Manderin Air are also considering their flight rate to Vietnam.” Even Vietnam Airlines (VNA) has to cut off its regular cost by 10 – 20 percent. The fuel price storm has forced VNA to cut its cost to the most possible rate. An opening “gateway” for VNA is to establish cooperation with a foreign airline so as to share its current difficulties.

 

The latest news on 27 August 2008 shows that domestic petrol price’s reduction of VND1,000 per litre is not able to cool down Vietnam airlines sector.

 

From the side of state management unit, Vietnam Airlines Bureau is very cautious when having a document proposing the Government to limit the number of newly established airlines to 2 – 3 ones until 2010. The lesson from the Indonesia neighbour is very obvious. Within a short period, this country grants licences to 36 airlines, most of which are private ones. This results in numerous difficulties in management. Facts have shown that due to massive licence grants and loose examination, Adam Air and Garuda have various air crafts dropped in 2007, which results in a loss of hundreds of lives. The European Union also puts many Indonesian airlines into the black list. Facing this situation, an official working in Indonesian airlines has to admit that they fail to control safety of their airlines.

 

Vietnam Government’s policy is to create favourable conditions for Vietnam airlines to develop. Recently, a series of state movements help support Vietnam airlines. The first movement is to increase the ceiling price of domestic flights. The second movement is to reduce import tax rate of petrol to 5 percent from 15 percent and to 0 percent for the moment being. When global fuel price is high, the Ministry of Finance continues to allow airlines to collect fuel surcharge on domestic flights. Facts show that all the domestic airlines want to do business without having their ceiling price limited, which has long been done by a majority of international airlines. However, it is easy to realise that tough competition of many airlines in these countries helps stabilise fare price to attract passengers (Currently in Vietnam, there are two airlines competing with each other, namely VNA and Jetstar Pacific.) Moreover, the difference among transportation means in these countries is significant. Travelling by express trains, marine ships and coaches, etc. are convenient equal to air transportation while the price is competitive.

 

However, even in global market, oil price’s increase of nearly 80 percent this year has forced many airlines to cope loss making risks. In the U.S, at least five airlines (include airlines at low cost and traditional airlines with more than 60 years of experiences) have gone bankrupt since March 2008, namely Aloha Airlines, Champion Air, ATA Airlines, Skybus Airlines and EoS. In Asia, Oasis Airlines which used to be regarded as a successful airline model at low cost in Asia, goes bankrupt on 9 April 2008.

According to Mr Nguyen Duc Tam, General Director of VietJetAir, fuel cost will account for 55 – 60 percent of total expense of a flight if the fight is as scheduled. As such, it is necessary that VietJetAir reconsider its business plan. Furthermore, according to information from VNA, this airline also has to bear an extra expense equivalent to thousands of VND billions due to high increase in material cost. The airline has no way but to cut down some of its domestic routes in August. Currently, Vietnam airline market is running into a risk of overproduction. Many airlines are having unprofitable, even loss-making turnovers due to fuel price increases. Many economics experts state that if well regulated, the airlines sector can see its revival in final months of 2008 since by that time, there will be lots of passengers with travelling demand to take part in festivals or go on tours, etc.