Liberalizing Vietnam's aviation market to boost economic and tourism growth: experts

Vietnam's aviation sector would see a considerable boost if the sector adopted deregulation policies and implemented market liberalization, according to RMIT and industry experts.

Countries such as Indonesia, Malaysia, and Thailand have all reaped the benefits of liberalization and deregulation in their aviation sectors, leading to increased flight options and more affordable fares, said Dr Nuno Ribeiro, a RMIT senior lecturer in tourism and hospitality Management and vice-chairman of Vietnam Eurocham Tourism and Hospitality Sector Committee.

Aviation market liberalization allows for new entrants and fosters competition. Liberalization compels airlines to improve services, reduce costs, and expand routes, resulting in more affordable airfares, greater travel options, and an overall enhancement of industry efficiency.

"The liberalization of aviation worldwide has led to increased competition, more innovation, increased choice, and lower prices for travellers, all of which can benefit Vietnam tourism," said Ribeiro.

Additionally, it drives economic growth by generating employment opportunities and boosting tourism and trade.

According to a report by the International Air Travel Association (IATA), the impacts of air service liberalization in Vietnam include a 38% increase in international traffic, a 27% decrease in the average airfare, the creation of over 100,000 new full-time jobs (of which more than 70,000 would be in the tourism industry), and an additional $1.3 billion contribution to Vietnam’s GDP.

Currently, there are five airlines operating in Vietnam, including Vietnam Airlines, Vietjet Air, Bamboo Airways, Pacific Airlines, and Vietravel Airlines, which is insufficient considering the rising travel demand Vietnam has experienced and is likely to increase in the future, according to Vu Thi Thanh Huong, country manager Vietnam and Cambodia at Qatar Airways and chairwoman of Vietnam EuroCham Tourism and Hospitality Sector Committee.

“We need more aviation supply to serve a booming sector that is critical for Vietnam’s economic development. For example, the Hanoi-Ho Chi Minh City route consistently ranks in the world’s top five busiest domestic air routes with more than 10 million passengers: current supply is insufficient to meet demand, leading to higher prices for travellers as we experienced during the last Reunification holiday," said Huong.

Martin Koerner, group commercial director of The Anam and vice chairman of the German Business Association, emphasised the inadequacy and high costs of flights between Hanoi and popular destinations like Phu Quoc island.

"The unavailability of important domestic flight routes causes significant problems to international travel agents as round trips through the country, stopping at various destinations from north to south, no longer can be done," said Koerner.

Lukasz Kozlowski, CEO and co-founder of MakeYourAsia, CEEC board member, and treasurer of Vietnam EuroCham Tourism and Hospitality Sector Committee noted that “with the increase in airfares, many travellers reconsidered their travel plans and opted for alternative modes of transportation or closer destinations. This has led to a shift in preferences towards destinations where airfares are more affordable, costing Vietnam businesses valuable revenue."

"When we compare Vietnam's aviation market to other countries in the Asia Pacific Region, we see that Vietnam has significant room for growth. For instance, the Philippines has 28 competing airlines, Indonesia 25, Japan 22, Malaysia 18, Thailand 18 (including Vietnam's Vietjet Air), South Korea 13, Cambodia 6, and Singapore 5," said Kozlowski.

According to experts, Vietnam has taken positive steps towards liberalizing its air travel market since joining the ASEAN in 1995, aligning itself with regional efforts to enhance connectivity and economic integration.

The resulting transformations in the Vietnam aviation sector from entering ASEAN have allowed for more competition and led, for example, to the emergence of low-cost carriers such as Vietjet Air and Bamboo Airways that have increased affordability and accessibility for air travellers, in line with Vietnam's efforts to boost tourism and economic growth.

Vietnam's joint signatory status in the ASEAN-EU Comprehensive Air Transport (AE-CATA), the world’s first bloc-to-bloc air transport agreement, emphasises the country's involvement in liberalizing air transport services between ASEAN and the EU, with the aim of boosting air connectivity, lower airfares, increased tourism, and improved trade activities.

This agreement is also expected to strengthen Vietnam’s aspirations of becoming a key regional travel hub, like Singapore and Dubai, which is seen positively by experts. "The AE-CATA Agreement will enhance Vietnam’s position as a natural gateway to Cambodia and Laos allowing tour operators to promote combined travel packages and foster regional tourism growth," said Kozlowski.

Experts were unanimous in their support for Vietnam’s efforts towards a progressive liberalization of its aviation market. According to Koerner, Vietnam should concentrate on measures that will drive sustainable expansion and improve market access, such as the upgrade or construction of infrastructure like Long Thanh and Lao Cai airports; continued engagement in bilateral and multilateral aviation agreements; removal of barriers to entry in the industry; revision of airline ownership regulations; and the facilitation of a supportive legislative, financial, and operational environment.

Vietnam’s Planning and Investment Ministry has opposed a proposal by Bamboo Airways to increase the foreign ownership limit in domestic airlines to 49% from the current 34%.

“Increasing the FOL to 49% should be carefully considered,” the ministry said, noting that “Vietnam had once raised the limit, but reduced it to 34% later.”

“At the moment, there is no legal basis to consider Bamboo Airways’s proposal to raise the FOL in the aviation industry to 49%,” it stressed.