Market turbulence for new airline

>> VietJetAir’s first flight scheduled for December 25

In early December 2011, Vietnam’s first licenced private airline VietJet Air announced its official entry into local aviation market and fly from December 25. At the inception, the airline will fly between Ho Chi Minh City and Hanoi.

Civil Aviation Administration of Vietnam (CAAV) deputy chief Luu Thanh Binh said VietJet Air had great potential.

However, industry insiders assumed it would not be easy for new comers like VietJet Air to jump into the aviation market.

This was demonstrated by the fact that the Ministry of Transport (MoT) just issued a decision to take back the licence of Indochina Airlines (ICA) since that private airline stopped operating for over 12 months.

Besides, according to CAAV’s deputy chief Dinh Viet Thang low-cost airline Jetstar Pacific Airlines might possibly be merged with national carrier Vietnam Airlines in the coming period.

Thang said Jetstar Pacific Airlines has been running at losses for years and the Ministry of Finance was considered Jetstar Pacific Airlines’ restructuring plan, which includes the option to merge with Vietnam Airlines.

MoT statistics show that by mid 2011 Vietnam Airlines held around 80 per cent market share in local aviation market, while Jetstar Pacific Airlines held 17 per cent.

VietJet Air managing director Chu Viet Cuong said the new airline faced big pressures entering the market.

“With expenditure mounting to VND250 million ($11,900) for each flight on Airbus 320 aircraft from Ho Chi Minh City to Hanoi, VietJet Air has to sell out at least 80 per cent of seats to reach breakeven point. That is extremely hard for a fresh airline like us,” said Cuong.

Air Mekong chairman Doan Quoc Viet said the airline’s business results in its first year were below expectations due to dong-dollar exchange rate problems, surging petrol and labour costs in addition to other factors like ticket prices which must not exceed regulated ceiling levels.

Industry insiders assume it would be hard for VietJet Air or Air Mekong to hold a remaining 3 per cent market share when they have to compete with Vietnam Airlines.

“Any movements taken by Vietnam Airlines, especially in revising ticket prices or promotional sales policies could affect the operations of remaining carriers,” Cuong said.