Jetstar Pacific fails to soar decades after taking off

Chairman of the budget carrier, Trinh Hong Quang, said recently that it has not been able to make a breakthrough despite operating for 29 years. The company has only reported profits for four years.

Jetstar Pacific, originally named Pacific Airlines, was the first joint stock airline established in Vietnam, in 1991, after the country allowed foreign investment in domestic carriers.

The government then owned 86.49 percent of Pacific Airlines via the Civil Aviation Authority of Vietnam (CAAV), with the rest belonging to two domestic private firms.

When the CAAV established Vietnam Airlines in 1993, it transferred all its stake in Pacific Airlines to the national flag carrier.

In 2006, the government transferred the 86.49 percent stake in Pacific Airlines to the State Capital Investment Corporation (SCIC), a state-owned company tasked with utilizing state funds. The airline had yet to turn a profit then.

A year later, Australia’s Qantas bought an 18 percent stake in the airline. Its name was then changed to Jetstar Pacific and it became the first low cost airline in Vietnam.

Despite expectations that a foreign investor would transform the business, Jetstar Pacific teetered on the brink. By the end of 2007, it reported an accumulated loss of nearly $55 million.

To save the airline, the government had to sell additional shares to Qantas, increasing its stake to 31 percent of the airline. Jetstar Pacific reported its first profit in July 2009, but made losses for the whole year.

By 2012, the airline’s accumulated loss doubled from five years earlier to VND2.4 trillion ($104 million). That year, SCIC transferred all its stake in the airline back to Vietnam Airlines.

Jetstar Pacific posted its first annual profit in 2014 at VND8 billion ($343,300), which rose to VND112 billion ($4.8 million) the following year before plummeting to losses in 2016 and 2017.

At the end of 2017, it had accumulated losses of VND4 trillion ($162 million). At this time, Vietnam Airlines owned nearly 70 percent of Jetstar Pacific, while Qantas owned 30 percent.

By expanding its fleet and lowering costs, the airline posted its highest profit ever in the first nine months of 2019 at VND205 billion ($8.8 million).

With the Covid-19 pandemic cancelling flights for months, the carrier estimates a record-high loss of VND1.2 trillion ($51 million) this year.

It is at this juncture that Qantas is set to divest its stake in the carrier, selling it to Vietnam Airlines.

Chairman Quang, who is also a deputy CEO of Vietnam Airlines, said that there were differences in management style between Australian private company Qantas and state-owned Vietnam Airlines, and the former does not understand the Vietnam market, which is crucial for the budget carrier.

The small fleet of 18 jets is another reason for the airline’s lackluster performance, Quang said, adding that the airline plans to strengthen it to 30-40 in upcoming years. Its competitor Vietjet had 78 aircraft by the end of last year and wants to bring this number to 200 by 2025.

Quang said Vietnam Airlines will buy back Qantas’s to own 98 percent of the airline, which will once again be called Pacific Airlines.

Industry insiders say that even with a new restructuring plan, Pacific Airlines will still face challenges with Vietjet having secured 41.9 percent of the domestic market. They note that even leading low-cost carrier AirAsia last year abandoned its plans to launch a joint venture in Vietnam following three failed attempts.

With two more carriers, Vietravel Airlines and KiteAir, waiting in the wings, local competition is set to intensify further.

Vietnamese airlines served 116 million passengers last year, up 12 percent from 2018, according to the Airports Corporation of Vietnam.