VietNamNet Bridge - According to the Center of Asia Pacific Aviation (CAPA), the domestic aviation market of Vietnam will suffer losses in the medium term, when the average fares fall because of competition.

Competition in the aviation market of Vietnam is getting fierce.

Vietnam is considered one of the seven fastest growing aviation markets in the world, with a growth rate of 21% in 2015 and is forecast to continue double-digit growth every year.

Vietnam has four airlines, including Vietnam Airlines, Jetstar Pacific, VietJet and Vasco, which are exploiting about 48 domestic routes. 2015 saw strong growth in both passengers and the number of aircraft, mainly in the field of low-cost airline.

From the early days, when Jetstar Pacific shifted to the low-cost model in 2008, the aviation market witnessed the lowest-ever airfare, which was equivalent to the price for a bowl of noodle. By the end of 2011, the private airlines Vietjet Air joined the market. The race for the market started and became more severe.

After more than four years, this March VietJet Air announced that it would increase charter capital from VND1,000 billion to VND1,450 billion. Previously, the airline signed contracts to buy and lease 100 aircrafts worth $9.1 billion, to buy engines worth $3.04 billion. The company continued to increase its fleet, up to 35 planes by March 2016, accounting for a market share of 28.8%.

In 2015, the market also saw the return of Jetstar Pacific, the first low-cost air carrier of Vietnam. After becoming the official shareholder of Jetstar Pacific in 2012, Vietnam Airlines joined the strategic shareholder - Qantas Airways of Australia – to restructure Jetstar Pacific.

The restructuring plan started by returning old Boeing 737 aircraft and hiring new Airbus A320 and utilizing the resources to improve services. Last year the airline launched 14 new domestic routes and increased its fleet to 15 Airbus A320/321. The total number of flights rose by 56% and the number of passengers increased by 53%, with nearly 4 million visitors. Jetstar Pacific's market share also increased from 13% to 14.9%.

Vietnam Airlines, with 47.6% of the market, and its partner Qantas Airways,  the two main shareholders of Jetstar Pacific, have recently announced the long term development plan for Jetstar Pacific, with the goal of holding 70% of the market share.

According to the plans released previously, Vietjet will have from 8 to 10 new aircraft per year while Jetstar Pacific will have 18 aircraft in 2016. This suggests that the race to grab the market continues to be fierce this year.

CAPA analyzed that although the aviation market is sufficient to support rapid growth, the rapid growth of the fleet and market share through selling cheap air tickets does not fully reflect the nature of the market. A major challenge is likely to happen: irrational competition in the domestic market will cause airlines to face risk of losses in the short to medium term.

In 2014 Vietjet earned revenue of VND8,100 billion, transported 5.6 million passengers, equivalent to the per customer revenue of VND1,446,000 million. VietJet Managing Director Luu Duc Khanh spoke at an event in 2015 said that Vietjet Air targeted VND14 trillion ($666.67 million) revenue in 2015.

However, in a meeting in early 2016, VietJet said its sales in 2015 reached over VND10,991 billion, transported 9.3 million passengers, equivalent to the per passenger revenue of VND1,182 million only. The number of passengers grew but the average ticket price reduced significantly.

With a smaller fleet, Jetstar Pacific made a breakthrough last year with nearly 4 million passengers from 2.6 million passengers in 2014. It did not make public the 2015 revenue but the firm stated it began earning a profit in the January-September 2015.

According to CAPA, Jetstar Pacific's profits mainly came from the international flights to Macao and China. The revenue from the domestic market still reduced owing to competition in lowering the airfares.

At the CAPA's Fleet and Finance Forum on March 3, Mr. Leslie Stephen, Deputy General Director of Jetstar Pacific, said the company planned to increase its fleet to 18 aircraft in 2016, up 50% and to 30 aircraft by 2020. Jetstar Pacific will still focus on the domestic market while expanding the international market.

Established in 1990, CAPA - Centre for Aviation is the provider of independent aviation market intelligence, analysis, reports and data services, covering worldwide developments on a daily basis.

US$1 = VND22,300

S. Tung