Aviation quandary as airlines wait to enter Vietnamese market

Leading tour company Vietravel said in April that it had applied for a license to launch Vietravel Airlines, based in the central province of Thua Thien – Hue Province. It said the initiative seeks to complete its ecosystem, taking advantage of its large customer base.

Vietstar Airlines, a military-run aviation company, has been pursuing a commercial license for years, and the government has said it can grant it only when the Tan Son Nhat International Airport finishes a new terminal and parking lot.

Tran Trong Kien, chairman of local resort and seaplane operator Thien Minh Group, last month established an aviation company, two months after a joint venture plan with AirAsia collapsed.

Anticipating aviation market growth, Vietnam’s largest private business conglomerate, Vingroup, plans to cooperate with a Canadian group to train train 400 pilots and mechanics a year.

Experts have expressed concerns over the country’s infrastructural capacity to serve the increasing number of aircraft.

Nguyen Thien Tong, former faculty head of aeronautical engineering at the Ho Chi Minh City University of Technology, said: "Existing airports are overloaded so another airline might be redundant."

The nation’s biggest airport, Tan Son Nhat International Airport in Ho Chi Minh City, served 38 million passengers last year against a designed capacity of 25 million, while the Noi Bai International Airport in Hanoi needs two runways repaired because they have been overused.

Major airports in the country have reported capacity overreach. Data from the Civil Aviation Authority of Vietnam (CAAV) shows that the Da Nang International Airport is exceeding its capacity by 13 percent, despite going through an upgrade and the the Cam Ranh International Airport in Nha Trang Town is doing so by 20 percent.

It is estimated that the country would need $2.4 billion to upgrade all civilian airports, but most of the new terminals are still in the planning process.

Another issue with approving new airlines is the limited capability of authorities to manage aircraft. In April, a request by the fifth Vietnamese carrier, Bamboo Airways, for permission to expand its fleet was met with overreach concerns.

The CAAV, which was not confident the carrier could manage the expansion also said that the authority itself could only manage a maximum of 256 aircraft, while Bamboo Airways’s new jets would bring this number to 277.

"New airlines mean more aircraft, while infrastructure is already overloaded. Authorities will face difficulties in managing new aircraft and ensuring their safety," Tong said.

Other experts proposed that the addition of airlines should happen in tandem with needed improvements in infrastructure. Economist Pham Chi Lan said that that the government should allow private investors to pour money into constructing and upgrading new terminals and airport services.

Cheaper fares unlikely

Aeronautical engineer Tong also said that more carriers in the market might not see the expected benefit for passengers in terms of cheaper ticket prices. He said prices are unlikely to go lower than what is being offered by low-cost airlines like Vietjet Air and Jetstar Pacific.

In the initial period, the new airlines might be willing to accept losses to attract customers, but in the long-term, "new airlines must keep their prices at a certain level to earn profit and cannot go down more than that," he told VnExpress International.

Economist Le Dang Doanh also said that new airlines will struggle to gain market share initially, as Vietjet and Vietnam Airlines have spent years to establish their presence.

"New airlines will be unprofitable for years as they try to win the trust and confidence of customers. There is no guarantee that they can offer lower costs than existing airlines."

Competition is going to be tough for the newcomers, experts say. Vietjet accounted for 44.8 percent of the market in terms of number of flights in the first six months this year, and Vietnam Airlines followed with 34.7 percent, according to the CAAV. New player Bamboo Airways has just 4.4 percent of the market since it began operations earlier this year.

Last year, Vietnam’s 21 state-run airports served 103.5 million passengers, up 11 percent year-on-year, and the figure is set to rise to 112 million this year, according to the Airports Corporation of Vietnam.

The number of visitors travelling by air in Vietnam is estimated to grow 17.4 percent in the 2016-2021 period, the fastest in Southeast Asia where average growth is estimated at 6 percent, according to the World Bank.