Vulnerable local airlines anticipate rebound in 2024

January 11, 2024 | 12:37
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An increase in international air routes is expected to serve as a fulcrum for the industry in 2024, helping domestic airlines end a painful period of losses in Vietnam.
Vulnerable local airlines anticipate rebound in 2024
Vulnerable local airlines anticipate rebound in 2024, source:

Last month, the domestic aviation sector received news that the Hanoi-Ho Chi Minh City route was ranked fourth out of the 10 busiest flight routes worldwide in 2023 by digital flight info provider OAG.

With more than 10.8 million seats being sold from October 2022 to the end of September 2023, the Hanoi-Ho Chi Minh City was only behind Jeju-Seoul Gimpo with 13.7 million seats, Fukuoka-Tokyo with 11.26 million seats, and Sapporo New Chitose-Tokyo with 11.93 million seats sold during the period.

“The domestic aviation market in 2023 has somewhat resumed to near 2019 peak level, even showing a surge in passenger transportation output,” said an executive at the Civil Aviation Administration of Vietnam (CAAV).

Vulnerable local airlines anticipate rebound in 2024

The CAAV’s latest figures indicate that Vietnam transported an estimated total 74 million passengers in 2023, a 34.5 per cent jump on-year, yet down by 7.4 per cent compared to 2019. International passengers reached 32 million, equal to a 1.7 increase on-year, and 77 per cent of 2019. Local passengers touched 42 million, down 3 per cent on-year but surging 12 per cent compared to 2019.

A highlight in the domestic aviation scene in 2023 is that from early in Q4, local airlines had entirely rebooted routes to traditional markets, simultaneously launching routes to several fresh markets in Central Asia such as Kazakhstan, Uzbekistan, Turkmenistan, and Mongolia.

Airlines also bolstered routes to two new emerging markets, India and Australia. Last year, passenger transportation volume of local airlines to India was an estimated 920,000, a nearly 15-fold increase compared to 2019, and to Australia reached 913,000 passengers, up 40 per cent compared to 2019.

“These two fresh markets have superseded traditional destinations in Northeast Asia, becoming a locomotive driving up revenue and profit figures for local air carriers,” said Dinh Viet Thang, general director of the CAAV.

In the outbound market, budget carrier Vietjet has been deemed the most active in terms of launching new routes as well as exploiting capacity. This year alone, the airline opened 32 new outbound routes, with five routes to Australia and two routes to India, bringing its total number of fly routes to 125 (45 local routes and 80 international routes). The airline transported 25.3 million passengers in 2023, up 23 per cent on-year, and 2 per cent more than 2019.

The aviation market in 2023 was positive, championing results beyond expectations. As such, carrier Vietnam Airlines is hoping to count $3.87 billion in consolidated revenue, equal to 127 per cent of its 2023 projection.

These results have pushed the company to boldly set the goal of balancing business revenues and expenditures from 2024, overcoming negative equity before 2025 with reduced losses, moving towards eliminating all accumulated losses in subsequent years.

Meanwhile, Vietjet is looking at positive profit in 2023, overcoming the challenging post-pandemic period.

The business results and recovery of Vietnam’s major airlines could have been even better, if they had not encountered market turbulence in terms of economic recession and diminishing demand in key markets.

The central banks of Japan and South Korea floating exchange rates caused the currencies of these countries to seriously depreciate compared to the USD, leading to a decrease in demand for outbound travel. Meanwhile, Russia has not yet restored direct flights due to embargo from the US and Europe. Besides this, input costs continue to increase, causing huge difficulties. The fuel prices throughout 2023 fetched more than $106 per barrel, causing Vietnamese airlines to incur more than $253 million in extra costs.

The rise of Vietnamese airlines is constant, yet in 2024, many unpredictable variables persist in local aviation, with the decline of the domestic market the most worrying.

According to the CAAV, the total air transport market is expected to approximate 80.3 million passengers and 1.16 million tonnes of cargo in 2024, an increase of 7.1 per cent in passengers and 4.8 per cent in cargo respectively compared to 2023. Domestic airlines will transport about 58 million passengers, equivalent to the 2023 figure.

However, while outbound route transportation may reach 19.5 million passengers in 2024, surging 30 per cent on-year, the domestic route transport is forecast to only reach 38.5 million passengers, down 10.5 per cent, something that has rarely happened in the local aviation industry previously. The forecast came in the context of airlines cutting many ineffective local routes. Some airlines even had to downsize their fleet after three years of being severely affected by the pandemic. To aid the airlines in current stormy times, the Ministry of Transport is considering and directing its units to look at the possibility of a 50 per cent reduction in aircraft landing and take-off service charges for domestic flights this year, and applying a zero cost on specific aviation services on the list of state regulated prices during the period.

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