Flexibility necessary for airlines to prosper

Much of Vietnam Airlines’ fleet has been grounded due to the pandemic

According to Le Hong Ha, deputy general director of Vietnam Airlines, the carrier has been fully aware of its responsibility to preserve and develop its products and services to both maintain the economic vein of the country and promote its golden lotus logo to bolster Vietnamese aviation and promote the nation’s culture and tourism across the world.

As a bridge between regions and the world, Vietnam Airlines is committed to maximising its potentials to support domestic businesses in delivering their products to not only customers all over the country but also to numerous international friends.

In 2020, Vietnam Airlines has been reaffirming its position as the top-quality airline of the nation and continuously maintained its 4-star services according to international standards. At the emergence of the pandemic, the carrier immediately applied distinct solutions to ensure safety for passengers, such as limiting reusable items, disinfecting aircraft, and providing sterile towels on flights.

However, Vietnam Airlines has not been able to avoid business risks caused by the pandemic. After successfully reducing the spread of the disease, in the second quarter customers began to again pay for air services, while the company sought to generate crucial revenue from inland services. Hopes were high that the third quarter would be the time to make up for the initial losses of the year, but as the next wave of new infections hit, any expectations of recouping revenue had been diminished.

As a result, half of the 217 aircraft flying under the five brands under Vietnam Airlines’ patronage were grounded as nobody wanted to fly anymore. Ticket prices decreased by more than 50 per cent compared to last year. Dang Ngoc Hoa, chairman of Vietnam Airlines, also noticed that “a lot of complications arose from the airline’s status as a state-owned enterprise and the state’s intervention in the aviation market.”

According to Hoa, methods of managing domestic ticket prices, among others, are outdated and not suitable for Vietnam’s air transport market. Currently, airfares are being adjusted according to the Ministry of Transport’s Circular No. 17/2019/TT-BGTVT on issuing prices for passenger transport services on domestic air routes issued in 2019, with regulations for ceiling prices for domestic routes presenting hurdles and leading to a decreasing diversity of the market and deviations in competition.

This regulation, Hoa said, is affecting the “business efficiency of airlines and reducing their motivation during peak times.” Air services are strongly influenced by seasonal factors, with domestic flights during holidays like the Lunar New Year always seeing low-load flights in one direction. Thus, airlines complain that the application of ceiling prices makes them unable to adjust prices and balance out their revenue.

“Ceiling prices alter the flexibility of the market and lead to additional cost for the airlines,” Hoa said. Vietnam Airlines has invested in new generation aircraft, such as the A350 and Boeing 787, and its 4-star services are aiming to compete in the region and the world. But the governmental price ceilings limit the carrier’s efforts to attract those customers willing to pay higher fares, ultimately affecting service quality – an important factor in the sustainable development of airlines.

“Rarely does a country manage domestic airfares with ceilings like they are applied here in Vietnam,” Hoa explained.

Vietnam has been deeply integrating itself into the global economy, so it may be necessary to minimise the participation of state management in enterprises’ business activities. “The state should only manage flight fares for monopolistic airlines but should not apply these measures for competitive domestic routes. Let the market self-regulate,” Hoa suggested.

“The domestic market is oversupplied, but international airlines are still entering the domestic market,” he said, adding that in his opinion, Vietnamese airlines have not received “equal treatment” in foreign markets, where even technical barriers are imposed to restrict the operation of in- and outbound flights. For instance, Vietnam Airlines has opened flights to Beijing for many years, with a frequency of five flights per week. “We have proposed to increase these by two per week, but the Chinese side only allows flights at midnight, when no passengers are willing to fly,” Hoa added.

In the context of extensive international integration, maintaining an airline’s brand seems vital for the competitive edge of domestic carriers. Vietnam Airlines has been creative and sought new directions to maintain production and business.

As nearly all passenger flights had been suspended during the social distancing period, the airline quickly made full use of its wide-body fleet and removed seats for the first time to increase cargo capacity in both the aircraft’s dedicated cargo and passenger compartments.

Vietnam Airlines has also been coordinating with the Vietnam National Administration of Tourism, the Vietnam Tourism Association, and tour operators to build stimulus packages across the country. In a short time, the airline added 22 domestic routes to meet and boost travel local demand and developed new products and services such as the Flight Pass offering customers bundled tickets with discounts to several domestic destinations.

Along with the over 120 other national brands, Vietnam Airlines has not only maintained production and business activities amid difficult circumstances but also participated in community activities.

Up to now, the airline has carried out nearly 150 flights to safely repatriate 50,000 people from other countries, transported more than 60 tonnes of goods to support pandemic prevention measures, and nearly 150 tonnes of cargo to aid people in the central region affected by storms and floods.