Opportunities to compete in airline industry

Thursday, 2019-05-09 17:48:30
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Goods handled at the Noi Bai International Airport in Hanoi
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NDO – Vietnam’s aviation industry has been growing in a robust manner over the past few years with the growth rate at a two-digit level for five consecutive years. The domestic market has the participation of five aviation firms including Vietnam Airlines, Vietjet Air, Jetstar Pacific, Bamboo Airways and Vasco, which is assessed to see the fastest growth rate in the world.

Positive changes in both "quantity" and "quality"

The number of aircraft belonging to Vietnamese airlines was 60 units with the average age of 8.8 years in 2008. The number has now tripled with the average age of aircraft reduced to 5.8 years. The air routes of Vietnamese airlines have also soared drastically over the past 10 years, from 25 domestic routes and 54 international routes to nearly 60 domestic routes and 130 international routes. The two-digit growth rate is forecast to be maintained until 2020 and gradually decline after 2020.

Previously, international flights mainly travelled through Noi Bai, Tan Son Nhat and Da Nang airports, but now they are connected with many other airports including Cam Ranh, Lien Khuong, Phu Quoc, Cat Bi, Can Tho, and others creating a steady development in both "quality" and "quantity".

However, the hot development of the aviation sector in the past few years reveals both positive sides and certain corollaries. The strong growth is a wide opportunity to boost air transportation, but the airport infrastructure has yet to keep up with the growth speed of transport in addition to the shortage of human resources.

According to economic expert, Dr. Vo Tri Thanh, the development of Vietnam’s aviation is attributed to high economic growth and higher income of the people over recent years. Vietnam's GDP has grown impressively from 5.5 to 7.5% per year during the past 10 years, while the airline industry has expanded by 2 to 2.5 times, in accordance with the evaluation and forecast of major organisations in the world.

Vietnam has large room to develop its aviation sector as its current transport capacity reaches only 50 million arrivals per year, much lower than the calculation of the International Civil Aviation Organisation (ICAO). Vietnam has an average of 1.9 aircraft per one million people, while Thailand has 4.7 aircraft and Malaysia has 9.5 aircraft per one million people. In Thailand, there were up to 30 airlines in operation at a time while the number was 27 - 28 in Indonesia. The aviation industry must strictly adhere to domestic and international regulations, with the top priority given to aviation safety, which not only determines the existence of an airline but also the prestige of its country.

The Vietnamese aviation market has seen the participation of some private businesses such as Vietjet and Bamboo Airways. Standing Vice President of Bamboo Airways Dang Tat Thang said that the competition is not only between airlines but also the competition between the State sector and private sector. In the context of trade liberalisation, the State should only play the role of guiding and outlining policies in addition to creating a fair competition environment between the public and private sectors. Thang noted that competition among airlines also brings great benefits to customers while firms compete for mutual development. The establishment of Vietjet and Bamboo Airways has opened up opportunities for a large number of people to have a chance to fly with affordable prices, Thang said.

Synchronous investment in airport infrastructure

The State has carried out policies to mobilise social resources in developing aviation infrastructure and several private investors have invested in this area, with Van Don airport in Quang Ninh province being a successful model of attracting private investment.

According to Vice Chairwoman of Quang Ninh provincial People's Committee Vu Thi Thu Thuy, when Van Don airport was put into operation, the province had mechanisms to support investors and tourists, so it attracted a large number passengers in a short time. Quy Nhon city in Binh Dinh province only welcomed one to two million international visitors in the past few years. After the FLC Group poured investment in resorts and opening new air routes, Quy Nhon has become a popular tourist destination. Vice Chairman of Binh Dinh provincial People's Committee Nguyen Phi Long said that the State had to provide subsidies to Vietnam Airlines to operate flights at the Phu Cat airport in Quy Nhon a few years ago, but the airport currently handles 20 flights per day and welcomed more than 300,000 international visitors in 2018. Quy Nhon also welcomed more than one million visitors in the first quarter of this year, contributing to increasing the income for local people.

Chairman of the Board of Airports Corporation of Vietnam (ACV) Lai Xuan Thanh said that ACV is managing 22 airports nationwide, including 21 airports in operation. However, the pressure on infrastructure only focuses on the two largest airports of Tan Son Nhat and Noi Bai, while the remaining airports only reach 20% - 30% of their capacity. To address congestion at Tan Son Nhat airport, many people think of building a new terminal T3, but if the infrastructure is not invested synchronously, the new terminal area may become another congestion point. Therefore, to completely solve the congestion at Tan Son Nhat airport, in addition to a T3 terminal, it requires synchronous investment in taxiways, aprons and runways, Thanh said.

The mobilisation of social resources in airport development must ensure the harmonisation of the interests of both investors and society. If an airport is divided into many items to call for investment, it will affect ACV's business and investment plans. The northern province of Dien Bien has proposed to expand the Dien Bien airport with a total investment capital of nearly VND 5,500 billion (US$236.5 million), including VND3,770 billion sourced from the State budget to invest in the fly zone and VND1,700 billion in form of public-private partnership (PPP ) to invest in the terminal. Thus, the State has to bear the majority of the capital to build the fly zone which is difficult to recover capital. The aviation industry has the principle of "an airport, an operator". Therefore, if only commercial items call for private investment, it will affect the stable development of the entire airport. Not all airports bring about direct benefits as there are airports that only boost socio-economic development for the locality but not for earning profits for itself, requiring the management and regulation from the State.