Vietnam budget airlines expand, as others incur losses

Vietnam budget airlines expand, as others incur losses

Regional budget airlines are incurring losses in Vietnam, but Vietnamese airlines continue their plans to expand their fleets.

VietJet Air, for example, has bought three additional A320s to expand its fleet. The air carrier now has 15 aircraft, an impressive figure. It made its debut 2.5 years ago.

Analysts question the move by VietJet Air to equip its fleet with more aircraft. They cannot understand why the Vietnamese air carrier is spending a great deal of money to buy aircraft at the moment when the regional aviation market has cooled down.

With more aircraft, VietJet Air would have to pay several billion dong more each day.

Meanwhile, the Economist magazine believes that the South East Asian budget air market is in oversupply. A report by Centre for Asia Pacific Aviation (CAPA), an Australian aviation market survey firm, showed that budget airlines now account for 58 percent of the regional market share.

Meanwhile, in Europe, easyJet and other air carriers, though having been in operation longer, can only hold 40 percent of market share.

Citing the figures, the Economist came to the conclusion that there are too many air carriers flying in the South East Asian market.

The “cramped” South East Asian market is getting even more crowded with the appearance of 12 new budget airlines, raising the total number of low-cost air carriers in the region to 59.

A number of regional budget airlines have reported losses. Tigerair, for example, has reported a loss of $177 million for the fiscal year ending in March 2014.

AirAsia, the largest budget airline group in the region, has also reported a sharp fall of 11 percent in profits for the first quarter of 2014 in comparison with the same period last year. AirAsia X, which mostly flies on long-distance routes, is nearly taking a loss, despite higher demand and improved seat occupancy rate. This has forced AirAsia to sell six A320s.

In early 2014, CAPA reported that in Japan AirAsia took a loss of $31 million in 2012 and another loss of $21 million in the first quarter of 2013.

As for the Philippines, Cebu Pacific has reported a drop in profits in the first quarter of the year, and in Philippines AirAsia reportedly has incurred losses.

In such conditions, the Vietnamese VietJet Air carrier is still pouring money into developing its fleet to expand business in the region.

VietJet Air’s Managing Director Luu Duc Khanh said the air carrier had set up a plan to develop seven international air routes from this year as part of its internationalization strategy.

International air routes, according to Khanh, include important ones that have stiff competition like Singapore and Bangkok.

VietJet Air on May 23 opened the HCM City-Singapore air route, providing one round trip a day. The route is also offered by at least five airlines, namely Vietnam Airlines, Tigerair, AirAsia, Lion Air and Jetstar Asia.

In order to compete with rivals, according to CAPA, VietJet Air needs to design a “very flexible” airfare policy and have optimal corporate governance to be able to break even after three to five years.

Jetstar Pacific, another Vietnamese low-cost airline, has opened its first international air route with flights from Hanoi/Da Nang to Macau.

vietnamnet