Vietnam airlines report record profits

The negotiation for strategic partnership between the Vietnam Airlines and a leading aviation partner of Japan is expected to take place more smoothly after Vietnam Airlines released information on its operations in 2015.

By December 30, 2015, with a fleet of 94 aircraft, including two modern aircraft models that have just been put into operation - Airbus A350 and Boeing 787-9 - Vietnam Airlines conducted over 127,500 safe flights in 2015, representing a year-on-year increase of 3.5%.

It transported more than 17.4 million passengers during the year, earning US$3.08 billion in revenue and $62.2 million in pre-tax profit, 129% higher than the set target. These are the highest results of Vietnam Airlines since its establishment 20 years ago.

From 2012-2015, it divested all its shares in 13 fields, up three compared to the restructuring plan. The divested amount reached US$36.4 million, two times higher than the investment value.

In 2016, the carrier set to transport 19.2 million passengers, up 10.6% against 2015. It is expected to post revenue of US$3.4 million and a pre-tax profit of US$102.2 million.

Meanwhile, after almost four years struggling with restructuring, the shareholders of Jetstar Pacific Airlines (Vietnam Airlines with 67.8% of charter capital, Qantas of Australia with 30% and Saigontourist with 2.14%) - started reaping the first fruits.

In early November 2015, Jetstar Pacific CEO Le Hong Ha announced that the airline had recorded a profit for the first time after three years of operation.

Ha said the firm had a profit of more than VND80 billion (nearly $4 million) in the period of January-September, mainly thanks to lower fuel prices and the increase of passengers.

With a fleet of 12 aircraft (up by seven aircraft compared to 2012), including two A321s, ten A320s, Jetstar Pacific is operating 32 domestic and international air routes (average occupying rate of 89-90%). Its total number of passengers in 2015 is estimated at around 4.5 million, up 2.3 times compared to 2012.

Recently, the three investors agreed to continue investing in Jetstar to enable it to compete with other low-cost carriers.

General Director Pham Ngoc Minh of Vietnam Airlines said that Jetstar Pacific has overcome many difficulties and now operates at a profit, achieving the goal set by the Vietnamese government and the shareholders. This is the right time for both sides to increase investment, expand the scale and implement the long-term development goals of Jetstar Pacific.

Vietnam Airlines and Jetstar Pacific plan to maintain the market share of the two companies on the domestic market at 70% and develop the fleet of Jetstar Pacific to 30 aircraft by 2020.

CEO Alan Joyce of Qantas Group said Qantas would continue to support Jetstar Pacific in sales, marketing and international cooperation activities with other Jetstar airlines. Jetstar Pacific will join Qantas to purchase new Airbus aircraft in the future.

Vietjet – the major competitor of Vietnam Airlines in the domestic aviation market – reported serving 9 million passengers in 2015. Although it still "hides" the most important business indexes, especially profit, Mr. Luu Duc Khanh - Vietjet CEO - affirmed that this result is enough to please even the most discerning shareholders.

Vietjet currently owns a fleet of 30 Airbus 320 and Airbus321 aircraft, with 180 daily flights covering all destinations in Vietnam and six countries in Asia.

According to the Hanoi Tax Department, Vietjet started earning taxable profit in 2014, after only three years of operation. Pursuant to regulations on investment incentives, this private airline is still exempt from corporate income tax in 2015, before having to pay 50% in the next three years.

Statistics by the Civil Aviation Administration of Vietnam (CAAV) in mid-December 2015 showed that airlines transported a total of 40.1 million passengers in 2015, up 21.2% compared with 2014. In particular, domestic airlines had 31.1 million passengers, up 21%.

Waiting for "explosion"

With the expected GDP growth rate for 2016, which was approved by the National Assembly, of 6.7%, the highest level in the last six years, the expected fuel price at $60 per barrel (down 11% compared to the average price in 2015 of $67.45 per barrel), the aviation market in 2016 is anticipated to continue to boom and reach 45 million passengers, up 19% compared to 2015.

In the domestic market, the total number of passengers is expected to reach 26.2 million, up 23.4% over 2015, equivalent to about 5 million visitors. All routes will grow, particularly domestic routes because low-cost airlines will invest heavily in these routes.

On the international market, big changes are not expected even after the ASEAN Open Sky Agreement takes effect from January 1, 2016 because most important commercial rights relating to the exploitation of the domestic market are still protected by member states.

Meanwhile, on routes to some major markets in ASEAN as Thailand, Singapore ... the influence is not great because Vietnamese carriers have completed their product and are capable of competing with products using commercial rights 5 (right to pick up passengers, cargo and mails from the second country to transport to the third country and the right to receive passengers, cargo and mail from third countries to carry to the second country).

According to experts, the high growth rate of 20% was not only the bright spot in the domestic aviation market in 2015.

"The competitiveness of the market has increased significantly with Vietjet’s continuous expansion of its market share in the domestic market through the expansion of the fleet and air routes," said Mr. Lai Xuan Thanh, CAAV head.

Some experts said that the domestic aviation market may witness fierce competition between Vietnam Airlines and Vietjet in 2016.

Earlier, with the active adjustment of business strategy to expand capacity to long-haul international routes, there were times in 2015 that Vietnam Airlines and Vietjet equally divided the domestic market with the rate of around 40% for each firm.

Vietnam Airlines also plans to hold 40.8% of the domestic market in 2016 (excluding the market shares of Jetstar Pacific and Vietnam Aviation Service Company (VASCO), which Vietnam Airlines hold shares in).

It is very difficult for Vietjet to pass Vietnam Airlines to hold the number 1 position in the next 3-5 years, experts said.

In addition to owning a fleet that is three times bigger and a major shareholder of the low-cost airlines Jetstar Pacific, Vietnam Airlines also has great advantage of owning complete logistics services, including many sectors with high profits.

The airline is also significantly restructuring to improve productivity and business performance after becoming a joint stock company.

"Despite concerns about the risk of oversupply, consumers are benefit the most from this exciting competition," said CAAV Chief Thanh.

Nevertheless, while the aviation policy in 2016 does not have significant changes, the slowly improved infrastructure conditions at airports in Vietnam will be one of the major barriers for local airlines.

According to current plans, there will be no major changes except for the expansion of Cam Ranh airport’s platform from January 2016 and the completion of renovation of Cat Bi airport in April 2016. Thus, overloading at the two major airports of Tan Son Nhat in HCM City and Noi Bai in Hanoi will continue to affect the activities of airlines in 2016.