Vietnam Airlines concerned about losses from first direct flights to US

By Ngan Anh   January 15, 2018 | 07:56 pm PT
Vietnam Airlines concerned about losses from first direct flights to US
A security guard cycles near an Airbus A350-900 aircraft during its delivery ceremony at Noi Bai International Airport in Hanoi. Photo by Reuters/Kham
Passenger shortages and turbulent competition could lead to annual losses of $30 million in the first five years.

Lack of passengers is likely to be one of the biggest challenges facing Vietnam Airlines if it opens direct flights to the U.S., according to the Civil Aviation Administration of Vietnam (CAAV).

Up to 90 percent of passengers flying between Vietnam and the United States are tourists and Vietnamese students, said the CAAV, explaining that they are not a stable source of passengers for the airline.

The number of Vietnamese students in the U.S. increased for the 16th year in a row to more than 22,400 in the 2016-2017 academic year, a 5 percent increase from the previous year, new data shows.

Vietnam remained the sixth leading economy of origin for all international students in the U.S, according to the annual Open Doors report by the U.S.-based Institute of International Education, which focuses on international student exchange and aid, foreign affairs and international peace and security.

Another reason non-stop flights to the U.S may be unprofitable is that students and tourists often go for the cheapest tickets available. Meanwhile, the number of business clients who can afford expensive tickets is still limited, said the CAAV.

Competition from other airlines will also be a factor for Vietnam Airlines, the country’s national flag carrier. Big Asian airlines such air Japan Airlines, China Southern Airlines, Singapore Airlines, Malaysia Airlines and Thai International Airways already operate regular flights to the U.S.

Fierce competition has forced United Airlines, the world's third-largest carrier, to stop operating flights to Vietnam from the U.S, local media quoted vice head of the CAAV Vo Huy Cuong as saying.

The airline ended its service to Vietnam in October 2016 after many years of serving Ho Chi Minh City via Hong Kong from San Francisco, Chicago and Newark.

“Vietnam Airlines could face an average annual loss of $30 million in the first five years of operation if we opens a direct route to the U.S.,” local media quoted CEO Duong Tri Thanh as saying.

We could start to break even after five years, he added.

Continue to wait

Vietnam’s government has recently approved a plan to expand its air network to major markets including Australia, China, Europe and the U.S. starting this year.

According to the plan, Vietnam Airlines will open non-stop services to the U.S. starting with direct flights to the west coast this year. San Francisco and Los Angeles are two destinations being considered.

However, it will be impossible to launch the flights in 2018, Thanh said. “We hope the routes will open in 2019 or 2020.”

Explaining the delay, Thanh said it takes time to complete the strict legal requirements imposed by the U.S. to launch direct flights to the country.

To open direct flights to the market, Vietnam’s aviation authority needs to have its safety credentials approved by the U.S.

Vietnam expects the U.S. Federal Aviation Administration (FAA) to grant the CAAV its Category 1 (CAT1) rating in 2018, recognizing that it has the capacity to ensure the safety of Vietnamese airlines.

The CAAV currently follows standards set by the International Civil Aviation Organization, but in order to earn the CAT1 it has to make certain improvements, including completing a new set of regulations, ensuring a sufficient number of staff and improving its supervisory capacity.

Vietnam and the U.S. signed an air transport agreement in 2003 to allow airlines to operate direct flights between the two countries.

In 2004, Vietnam Airlines sought permission from the U.S. to provide direct services, but the request was denied because the CAAV did not meet the safety supervision requirements set by the FAA.

The airline said it has reapplied to the U.S. Department of Transportation to launch direct flights.

In addition to strict legal requirements, a shortage of aircraft eligible to operate direct flights to the U.S. could also cause delays.

“Vietnam Airlines does not have any airplanes that are currently eligible to fly direct to the U.S.,” Thanh said.

Vietnam Airlines currently operates seven flights per week to cities in the U.S. under codeshare agreements with foreign carriers.

The U.S. is the fourth largest source of foreign visitors to Vietnam, with more than 614,000 arriving in 2017, up 11 percent from the previous year, according to the General Statistics Office.

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