AirAsia plans Vietnam venture as travel demand surges

Malaysian budget airline AirAsia said it will develop a low-cost carrier in Vietnam by teaming up with local businesses to catch up with the country’s travel boom.

AirAsia, the region’s biggest budget airline, has signed an agreement with Hanoi-based Gumin Co, Hai Au Aviation and Tran Trong Kien to form the venture, the airline said in a statement filed Friday to Malaysia's stock exchange. Kien runs the two Vietnamese businesses, Bloomberg said.

The venture, expected to start flying in early 2018, will need investments of VND1 trillion ($44 million), with AirAsia contributing 30 percent and Gumin holding around 70 percent, the statement said.

Vietnam’s aviation market grew 29 percent in 2016 with passengers reaching 52.2 million, the Civil Aviation Authority of Vietnam said. Low-cost carriers served 55 percent of passengers on domestic trips last year, it said.

"There is great potential for growth in Vietnam," AirAsia said in the statement, citing the country's fast-growing economy, a sizable population, and its ranking as Southeast Asia's fifth largest aviation market after Indonesia, Thailand, Malaysia and Singapore, apart from being the world's fastest growing aviation market in 2015-2016.

Bloomberg said Air Asia CEO Tony Fernandes, who seeks to build a pan-Asian budget airline, has interest in Vietnam as its growth in passenger traffic was triple the pace in other Southeast Asian nations.

But Brendan Sobie, Singapore-based chief analyst at CAPA Center for Aviation, forecast “huge challenges” for AirAsia as the market in Vietnam is now well served by two low-cost carriers VietJet and Jetstar Pacific. “AirAsia is very late to the party,” he told Bloomberg.

“The rate of growth will likely slow in the coming years as the market is now more mature,” he said.

AirAsia has established affiliates in Indonesia, Thailand, India and Japan, and has ordered hundreds of planes worth billions of dollars to meet its growth ambitions, Bloomberg said.