VRC derailed by low-cost airlines, modern highways?

Tran Ngoc Thanh, chair of VRC, told an audience gathered at a recent business forum in Ho Chi Minh City that the railway’s revenue for the first half of 2016 dropped 22.50% on-year to US$88.60 million (VND1.95 trillion).

Passenger and cargo volumes have fallen for two straight quarters, he said, but he didn’t offer any information on how the railway is continuing to pay ongoing operating expenses with such a devastating loss of top-line revenue.

He attempted to cast the blame for the lower revenue in part on the collapse of the Ghenh Railway Bridge in Dong Nai Province, which, he alleged, had resulted in lower transport of cargo and passengers in May and June.

Another excuse he proffered was that the massive fish deaths in the four central coastal provinces somehow negatively impacted the volume of freight and passengers, but it was never clear to anyone exactly what point he was trying to make.

One seemingly logical explanation he offered for the decline was that the overall improved highway transportation system has resulted in more travellers and cargo being transported by vehicle.

He specifically pointed to the opening of the Noi Bai-Lao Cai Highway last September, noting that passenger and cargo transport by rail has steadily declined since the ribbon cutting ceremony.

The number of passengers on the Hanoi-Dong Dang railway line along with the quantity of cargo and passengers on the Gia Lam-Nanning international train have also plummeted due to the inconvenience travellers face passing through the Vietnam-China border-gate, added Mr Thanh.

The VRC has submitted a proposal to the Ministry of Culture, Sports and Tourism to address the unfortunate situation, he said, that calls for streamlined procedures making it more convenient for travellers.

Nguyen The Vinh, deputy director of Saigontourist, in turn noted his belief that a major contributing cause of the decline in rail passenger traffic is that more tourists are now travelling by air and foregoing rail. 

He suggested that this is due to the fact that airlines are offering a bevy of low cost air tickets this year.

The price of an air ticket at one airline, he said, recently was US$26.72 (VND600,000) for a one-way ticket from Hanoi to Danang while the rail fare was US$31.18 (VND700,000) per bed, one-way for a 4-bed cabin, with air conditioning.

In his opinion, he didn’t think that VRC could compete on price or quality of service with the airlines at these rates and, as a result, it’s cutting heavily into revenue and profits of the railway.

Dao Anh Tuan, director of Saigon Railway Transport Joint Stock Company, added credence to Mr Vinh’s claim saying the number of passengers booking tickets on routes from Ho Chi Minh City to Danang, Hue, Dong Hoi and Vinh, was done sharply this summer against last.

Nguyen Hong Hai, deputy director of Saigon Railway Transport Joint Stock Company, said all railway charges should be re-evaluated and lowered with the overarching goal of boosting revenue.

In particular, he said, discounts should be offered for large cargo shipments.

Obviously, there is much more to this story say market analysts because if the revenue drop was as significant as reported by Tran Ngoc Thanh, chair of VRC, roughly US$26 million, then how is the railway paying its bills.

A US$26-million-dollar loss of revenue would certainly derail most companies and it just doesn’t pass the smell test that low cost airlines and modern highways alone would have this significant an impact— without alarm bells having rung long ago.