Low cost carriers – a suitable model for private airlines?
Low cost carriers – a suitable model for private airlines?
Only 30 percent of passengers in Vietnam fly with budget airlines, much lower than in Malaysia and the Philippines, where the proportion is 50 percent, the highest in South East Asia.
Indochina Airlines shut down just after one year of operation. Air Mekong was better, but it could “contend” for two years. Meanwhile, Vietjet Air has been existing and making profit.
The fact that Vietjet Air can make profit while other airlines report loss has raised a hope that low cost carrier (LCC) could be a reasonable model, especially for private run airlines.
CAPA, an organization which specializes in analyzing the aviation industry in Asia Pacific, believes that Vietnam and Myanmar are the two markets which have the greatest potentials for LCC development in the next three years.
Analysts believe that the investment rate in the aviation sector is very high. Therefore, the first thing investors need to have is the stable long term investment capital. Vietjet Air is believed to be backed by powerful shareholders. The air carrier also plans to make initial public offering (IPO) in the time to come to attract capital from foreign sources.
Vietjet Air has been successful in using the cash flow and ensuring the high quality of services. It can collect money from ticket sale 3-9 months before the departure time, while they can pay for air petrol, aircraft chartering, land services one month later, which has helped balance the receipts and expenses.
With the four domestic air routes to be opened from September, Vietjet Air would provide 500 flights a week on 16 domestic and international air routes.
According to Brendan Sobie from CAPA, Vietjet Air’s domestic market share has increased from 14 percent in mid July to 20 percent.
The private airline plans to set up a series of joint ventures with foreign partners. It recently has joined hands with Kan Air to develop the domestic air routes in Thailand. A new joint venture with a Myanmar’s partner may be set up in the near future.
Analysts have noted that the strategies followed by Vietjet Air have similarities with the ones pursued by Air Asia over the last decade.
When asked about the services of the “next-generation air carriers” like Vietjet Air, Luu Duc Khanh, Vietjet Air’s General Director, said the carrier wants to become a fast food provider like KFC or McDonald’s, which brings full, nutritious, tasty and enjoyable meals at reasonable costs.
Analysts have commented that the development of budget airlines in Vietnam comes in accordance with the strong growth of the model in South East Asia.
The latest report by CAPA said making IPO proves to be the core strategy for the regional budget airlines to develop the fleets to 500 aircrafts by the end of the year, which represents the 20 percent per annum growth rate.
In May 2012, Thai Air Asia completed the IPO which brought $140 million in capital to serve the plan to expand the fleet from 27 A320s in late 2012 to 35 by the end of 2013.
Air Asia X also successfully made IPO in July and got $310 million for the plan to upgrade the fleet from 11 A320s to 18 by the end of this year.
vietnamnet
