Vietnamese airlines are yet to return to profitability despite a strong recovery in passenger transport post Covid-19 as airfares are still too low to cover costs, said CEO of Vietravel Airlines Vu Duc Bien.
He added that although the international market has almost fully opened, Vietnamese airlines still face many difficulties such as escalating fuel prices, fluctuating exchange rates, infrastructure and credit bottlenecks, and geopolitical conflicts.
According to Bien, Vietnam's aviation infrastructure is still in the process of development, so overcrowding puts pressure on the industry's recovery and growth. During peak periods like holidays and the Lunar New Year (Tet), infrastructure cannot meet surging demand, making it difficult for airlines to operate at full capacity. Projects to resolve air infrastructure congestion such as Terminal 3 at Tan Son Nhat International Airport in Ho Chi Minh City and Long Thanh International Airport in neighboring Dong Nai province have been kicked off, but will take time to go into operation.
During two years of the pandemic, the airlines saw no revenue due to frozen business activities, but still had to incur maintenance costs. As a result, they were almost financially exhausted. Currently, although the situation has recovered, they are still facing pressure to repay loans at high interest rates, he told The Investor.
"Notably, airfares are not enough to cover costs. Therefore, in addition to regulations on ceiling prices, authorities should consider applying floor prices based on the operating model of each airline to create a sustainable and competitive environment and still ensure customer interests," Bien noted.
While fuel costs (fixed) make up 20-35% of total costs, other variable costs such as engineering, departure and arrival flight operation services; aircraft landing and taking off; parking chargers; check-in counter rental, premises, and warehouses at airports account for about 65-80%. Therefore, cutting or reducing costs would not improve the situation that much.
“Reducing ticket prices to match trains or cars is unfeasible, just like we stay in a 5-star hotel or a normal hotel. There should be different fees to suit each customer's budget so that businesses can survive,” the Vietravel Airlines CEO said.
Bien held that carriers are the core of the aviation industry but are vulnerable and unstable, while other businesses in the ecosystem such as airports and catering and ground services providers are operating quite well thanks to specific policies and mechanisms. Therefore, the government should take measures to regulate the aviation sector, including the organization of a forum for stakeholders to contribute ideas to increase the competitiveness and sustainability of the airlines.
According to the Civil Aviation Authority of Vietnam (CAAV), the total number of passengers through airports reached 89 million in the first nine months of 2023, a year-on-year increase of 20%. They included 23.7 million foreigners and 65.2 million domestic passengers, up 266.8% and 3.6% respectively compared to the same period last year. Meanwhile, freight transport by air decreased by 15.3%, reaching 887,500 tons.
Five Vietnamese airlines, namely Vietnam Airlines, Vietjet Air, Bamboo Airways, Vietravel Airlines and Jetstar Pacific, currently operate 67 routes with over 650 flights per day in the domestic market. In addition to increasing the frequency of existing routes, the airlines have launched a number of new routes such as Can Tho-Van Don and Hanoi-Ca Mau.
In the international market, in addition to traditional markets and some new markets in Central Asia like Kazakhstan, Uzbekistan, and Turkmenistan, Vietnamese airlines have also launched flights to India and Australia.
However, nearly two years since Covid-19, most airlines are still suffering losses. National flag carrier Vietnam Airlines reported a net loss of more than VND1.3 trillion ($53.27 million) in the first half of the year and may incur a pre-tax loss of VND4.5 trillion ($184.4 million) for the whole of 2023.
Bamboo Airways and Vietravel Airlines also posted losses in the first half, while Vietjet Air earned a profit of VND135 billion ($5.53 million), down 5.5% year-on-year.
Profit only comes with 20-strong fleet
Vietravel Airlines, a subsidiary of tour operator Vietravel, was established at the end of 2020 and launched its first flight in early 2021. However, the pandemic caused the business to hibernate for 2021, except for April. That caused great difficulties and pressure for the board of directors as well as employees at Vietravel Airlines.
However, thanks to flexible solutions, the airline has gradually removed each bottleneck to go through this difficult period and found opportunities in the aviation market, Bien told The Investor.
After nearly three years of operation, Vietravel Airlines has expanded its flight network to major cities in Vietnam such as Da Nang, Phu Quoc, Nha Trang, Quy Nhon and Da Lat, and even to Bangkok of Thailand. It also successfully operates charter flights to Daegu and Muan (South Korea), Macau, and Sanya.
In September, the carrier officially obtained CCAR-129 from China. CCAR-129 is a regulation that ensures frequent operators to China are complying with the Civil Aviation Administration of China’s (CAAC) operational and safety standards and requirements. Currently, there are only 36 airlines in the world that have CCAR-129 and Vietravel Airlines is among the two airlines granted it this year.
To date, in Vietravel Airlines' customer structure, only 30% of seats are reserved for tourists (tour passengers) and 70% for commercial passengers. In the first half of the year, its flights increased 48% and passengers 43% compared to the same period in 2022. The occupancy rate reached up to 80-85%.
"These are important premises for the company to further develop in the aviation field," said the CEO.
Although the business has not yet made a profit, a positive signal is that it has gradually reduced losses compared to the previous period. Currently, the airline only operates three planes - a number that is not enough to offset costs. In its development plan, depending on financial potential and market recovery, by 2025-2026, Vietravel Airlines will increase the number of aircraft to 20 and then think about a profit, Bien said.
Vietravel Airlines plans to increase capital to meet development needs and seek investors accompanying it during the development process in the near future, he added