Although it’s become easier to set up an airline in Vietnam, the reality is, it’s proved to be a tough task for startups to get off the ground in this market of 86 million people.
At present, four carriers have been licensed to operate domestic flights. State-owned Vietnam Airlines and its subsidiary Vasco, partially foreign-owned Jetstar pacific Airlines and private-run Indochina Airlines have all been battling for a piece of the pie.
Two more licensed private-run carriers – Vietjet Air and Mekong Air – are planning to start flying next year.
The size of the market and the country’s consistent economic growth are cause for optimism, but on closer inspection, cracks begin to appear in the façade. Today, state-run Vietnam Airlines commands a 70 percent domestic market share. The other carriers are left with the scraps.
Pacific Airlines, formerly a subsidiary of Vietnam Airlines, sold a 30 percent stake to Australia’s Jetstar Airways, a subsidiary of Qantas Airways, Pacific and was officially renamed Jetstar Pacific Airlines (JPA) on May 23, 2008.
But JPA has failed in making much of a run at its former parent company, consumer confidence is down and Vietnam Airlines, with a virtual monopoly from the outset, hasn’t needed to do much to keep its position at the top of the heap.
In April last year, Vietnam Air Petrol Company (Vinapco), a Vietnam Airlines subsidiary, stopped supplying fuel to JPA.
Vietnam Airlines also filed a petition with the CAAV, the country’s aviation czars, and the Transport Ministry, saying that JPA should not be allowed to use the Jetstar logo as foreign airlines aren’t permitted to run flights on domestic routes.
As of August last year, JPA claimed a combined loss of more than US$50 million.
Things are worse for Indochina Airlines. Licensed in May 2008, the carrier had to return one of its two aircraft in April this year due to financial difficulties. The airline could also lose its license if it fails to pay off its debts.
The Civil Aviation Administration of Vietnam (CAAV) in November cancelled the flight schedule of Indochina after the cash-strapped carrier returned its sole aircraft to its European aircraft leasing partner.
Meanwhile, the first private airline to be licensed in Vietnam in December 2007, VietJet Air, has so far announced several delays due to the impacts of soaring fuel costs in mid-2008 and low air travel demand.
VietJet Air is seeking approval to commence its services on domestic routes in May 2010 instead of the earlier-planned launch deadline of this month.
Mekong Air, the third private airline licensed in Vietnam, is also planning to launch domestic flights next year.
It costs only VND200 billion ($11 million) to set up an airline for domestic flights and VND500 billion ($27 million) to open an aviation company catering to both domestic and international flights in Vietnam.
But it takes a lot to survive in the aviation business: budget, management experience and domestic market knowledge, to name a few.
But with all the problems, why is there still a long line of investors queuing up enter the fray? A recent government decision which raised the foreign ownership cap in local public companies to 49 percent may be the answer.
The decision may be good news for foreign air carriers who want to promote their brand in rapidly-growing Asia.
According to the Ministry of Transport, the establishment of new aviation firms is crucial to Vietnam’s aviation market as it will boost competition in the face of rising demand.
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