Airlines suffer losses amid rising fuel prices

Vietnamese airlines are suffering losses amounting to millions of US dollars each month due to a surge in fuel prices, according to the aviation authority.

Dinh Viet Thang, director of the Civil Aviation Authority of Vietnam (CAAV), said domestic carriers are recording hundreds of billions of dong in losses each month (VND100 billion = $4.3 million) as fuel costs accounted for 40-50% of operation expenses, and revenue increases are insufficient to compensate for high fuel prices.

"Domestic aviation transport has recovered with higher growth than in the pre-pandemic period. However, Vietnamese carriers have not fully escaped difficulties due to the slow recovery of the international market," Thang told a Ministry of Transport conference last week.

Tran Thanh Hien, chief accountant at Vietnam Airlines, said Jet A1 prices averaged $72 per barrel in 2021, and carriers developed the scenario where the average jet fuel price was $110 for 2022. However, the fuel price reached $162, two times higher than last year.

If fuel prices keep increasing and are maintained at a high level for a long time, no carriers will earn a profit, Hien said.

As domestic airlines are struggling with high fuel prices, the CAAV proposed the transport ministry consider reducing the environmental tax on fuel together with gradually loosening caps on domestic ticket prices so that airlines could be more flexible.

Le Hong Ha, general director of Vietnam Airlines, said that loosening the air ticket ceiling would reflect competition in the air transport market. This would help airlines to collect surcharges on customers who could afford it and be an opportunity for the carriers to widen the price fluctuation range.

Bui Doan Ne, vice president of the Vietnam Aviation Business Association, said high fuel prices are a real challenge as domestic airlines have just gone through more than two years of difficulty due to the pandemic and have not yet recovered.

National flag carrier Vietnam Airlines recorded a loss before tax of VND2,621 billion ($113 million) in the first quarter of 2022, after eight consecutive quarters of losses. The rising price of oil forced the carrier to incur an extra VND465 billion ($20 million) in jet fuel expenses compared to its plan, accounting for 30% of total air transport costs.

As of March 31, Vietnam Airlines had accumulated losses of more than VND24,500 billion ($1.06 billion), and negative equity of VND2,160 billion ($93.2 million). The carrier expects loss after tax of $401.5 million in 2022.

Meanwhile, Pacific Airlines, a Vietnamese low-cost carrier, is at risk of insolvency and termination of operations owing to a severe financial crisis, cash flow constraints, and substantial overdue debts. Parent Vietnam Airlines disclosed the situation in a document released prior to its shareholder meeting in late June.

Data released at the conference shows that the number of monthly international air passengers had increased from 103,500 in January to 127,000 in February, 224,600 in March, and 445,700 in April, 650,000 in May and an estimated 826,000 in June.

At the end of June, more than 30 foreign and four Vietnamese airlines were operating 96 international routes between Vietnam and 21 countries and territories. Vietnamese carriers were using 68 international routes to 16 countries and regions.

In the domestic market, six Vietnamese carriers were operating 55-60 routes connecting Hanoi, Da Nang and Ho Chi Minh City with 19 local airports. The lifting of pandemic-related restrictions, along with booming demand, is bringing about a fast recovery of domestic aviation transport, with the number of domestic passengers growing from 10-15% each month in the second quarter.

The number of air passengers going through Vietnamese airports was expected to reach 70-80 million this year, including 8-10 million international travellers.