Is Vietnam Aviation Growth too Hot?

10:30:48 AM | 5/23/2019

According to the International Air Transport Association (IATA), Vietnam will become the world's fifth fastest-growing aviation market, reaching 150 million passengers by 2035. With a population of nearly 100 million, Vietnam domestic aviation market is expected by IATA to increase by an average of 15% per year in the coming time.

Dr. Vu Tien Loc, President of Vietnam Chamber of Commerce and Industry (VCCI), said that air transport is growing strongly globally, with the strongest growth being in developing countries. Vietnam is among the fastest growing countries in the region.

According to statistics, aviation promotes economic growth, every 1% growth in aviation is associated with 0.4 - 0.5% GDP growth. In Vietnam, in recent years, the aviation industry has grown at an average of 14-15%, corresponding to the GDP growth rate of 6.8 - 7%/year.

According to Dr. Loc, the domestic aviation market has made a breakthrough, breaking the monopoly. From a kind of transport only for business people or high-income people, nowadays, aviation has become popular, the opportunity to fly is open to all people.

On the other hand, Vietnam is also gradually shifting its industrial production to manufacturing of hi-tech goods, which are products with great demand for air transport.

However, Dr. Loc said that the growth of aviation is quite hot so Vietnam is facing many challenges such as overloading airport berths, security on flights, in which the entry of new airlines can create "irregular" competition, which poses many challenges.

“Vietnam is a member of the ASEAN economic community. Countries in the region will become a common market and goods are freely flowing. This is an opportunity for an open sky. But the challenge of Vietnam is the shortage of high quality human resources for air transport and infrastructure that do not meet the demand,” Dr. Loc said.

According to aviation experts, the higher the market competitiveness is, the better the service quality becomes, as it gradually eliminates the pressure from the carrier. Recently, many airlines have increased utilities for passengers, even as the market is in a hot development stage, but the development of the aviation industry in Vietnam is not yet relevant.

Mr. Bui Doan Ne, General Secretary of the Aviation Business Association, said that the growth of aviation depends on economic development. To meet the needs of about 100 million people, such growth is appropriate.

Vietnam currently has five airlines, namely Vietnam Airlines, VietJet Air, Jetstar Pacific Airlines, Vasco and Bamboo Airways. Economic experts said that in the near future, Vietnam will need about 10 new airlines.

In the same view, Mr. Luu Binh Nhuong, deputy head of the National Assembly Committee for People’s Aspiration, said that compared to the demand for travel, the growth rate of the economy, population, number of airlines and revenue of airline companies, the term "hot growth” is not true, but appropriate. However, according to Mr. Nhuong, there is another aspect, which is whether there is a "runway inflation" situation when voters recommend that the airport infrastructure density is increasing.

According to Mr. Nhuong, in order to comprehensively develop the aviation industry, we should not only focus on infrastructure but also aviation culture and flight crew. Vietnam's aviation industry is mainly still a service, not yet a production, so it is necessary to comprehensively assess the role and contribution of the industry to the economy.

In order to maintain the sustainable development of the industry, Mr. Nhuong said that first, Vietnam needs a full, synchronous, transparent, open-air institution, "good" playing field and in which the rules of the game must approach international standards, in accordance with the general planning, such as airspace planning, flight routes. Second, it is necessary to have equal treatment from the State, businesses and people, avoiding inequality for state enterprises and private enterprises. Third, we need to distinguish between business and service, in particular, separating the business and service activities of Vietnam Airlines.

Fourth, we should pay attention to national safety and security, how to separate military and civil airports. Fifth, in every situation, the construction of the cultural environment in the aviation market is very important, this is the face of the nation and the national brand for economic development.

“We still believe that the cooperation between airlines will contribute to building a Vietnamese business model - no special distinctions, no component mechanisms - a cooperative and competitive community with each advantage of each airline. In particular, the development of the 4th industrial revolution predicted that the development of the aviation industry will be even stronger than the development of Uber and Grab in the road transport model,” Dr. Loc emphasized.

Dr. Nguyen Dinh Cung, President of the Central Institute for Economic Management (CIEM)

In fact, we need to create a legal corridor wide enough for businesses to be equally competitive. The best thing of Vietnam air transport market recently is competition. Competition in the aviation market here is not only between airlines but between the State economy and the private economy. In the opening period, the State only plays a role in guiding the direction and policy, and how to create a public and private environment equally.

Firms compete for mutual development, not competing to defeat or weaken opponents. The competition between airlines also greatly benefits customers, helping many people have the opportunity to access cheap flights.

Mr. Pham Ngoc Minh, Chairman of Vietnam Airlines

The growth rate of the airline industry in the second half of 2018 was 9% and the first quarter of 2019 was approximately 7%. With this growth, we need to answer the question where this growth came from. Is it due to overloaded transport infrastructure or due to the inevitable boom of the development of road passengers to aircraft? The next part of this development story is safety and security, particularly between the supplier and the monitoring unit.

From the perspective of flight routes in regional economic development, our experience in opening local routes shows that the essential point is the local vision.

In the vision of development in the 2020 orientation of 2030, Vietnam's aviation market will rank 4 out of 4 leading ASEAN countries in output. In order for the aviation market to grow, it is necessary to open the mindset first. Along with that is the policy, creating competitive pressure to improve the capacity of enterprises in the aviation market.

Mr. Lai Xuan Thanh, Chairman of Airport Corporation of Vietnam

As a state-owned enterprise that is only assigned with airport infrastructure development, the first feeling is that the airports have not yet met the airlines.

Looking back on the past, basically the aviation market has developed according to the market trend. However, if the plan has been fully implemented according to schedule, it will be more responsive. But the story here also involves making policies and planning.

Aviation is locally congested, especially Tan Son Nhat Airport, leading to congestion at other airports. The policy of "rescue" has been drafted for three years, but it has not yet been decided who is the investor. There is congestion at the process and administrative procedures. We are an assigned business that is responsible for renovating and expanding airports. We are professional, financially competent, but have not been assigned a task to deliver that.

Lawyer Nguyen Danh Hue, Chairman of Hung Dong Law Firm

We should be open to enabling private enterprises to participate in the aviation market, create competition, create profits for the State, and especially consumers.

Monopoly needs to be carefully considered, because monopoly does not create good business performance, especially in the field of aviation. This industry is judged not to affect security and safety factors like the energy to be too cautious. Meanwhile, facilitating private sector to participate and socialize the industry will bring benefits to the State, customers and consumers.

In terms of infrastructure, Vietnam is being "congested" in the way of operation and how to apply science and technology to aviation business. Therefore, it should be open to private enterprises to participate in the aviation market, which contributes to market transparency.

Quynh Chi