VietNamNet Bridge – The aviation market is at the development stage when the winners are the ones who have lower management costs. Budget airlines have gained the upper hand.

Vietnam Airlines’ dominant position shaken

The Ministry of Transport two weeks ago reported that all the domestic airlines made profits in 2013.

Vietnam Airlines, the national air flag carrier, has reported the revenue of VND72.555 trillion and the pretax profit of VND533 billion. Vietnam Airlines holdings made a profit of VND140 billion, double that of the last year, a considerable growth after three years of stagnation.

Vietnam Airlines reportedly provided 114,000 flights, serving 15 million passengers.

Vietjet Air has not released the 2013 finance report. However, it expects a satisfactory profit with 3.2 million passengers served, which is triple that of the last year.

However, analysts have pointed out that Vietnam Airlines’ profit came not only from the transport services, but also from ground services, air petrol and imports & exports.

They noted that Vietnam Airlines in 2013 got two irregular sources of income from the sale of two Forker 70s and the $18 million loan from Airbus.

Vietnam Airlines’ managers themselves once admitted that it incurs loss from the domestic transport services, while the loss can be only offset by the international flights and ground handling services.

Governor of the State Bank of Vietnam Nguyen Van Binh once revealed that Vietnam Airlines asked the State Bank not to adjust the dong/dollar exchange rate until December 31, 2013, or its profit would turn into loss.

In 2011, the air carrier reported the predicted loss of VND1.787 trillion for domestic air routes to the Civil Aviation Authority of Vietnam (CAAV). In 2012, it had to adjust the production plan three times and tried every possible method to cut down expenses.

Meanwhile, Vietjet Air, which is considered the “rookie” on the market, reported the pretax profit of VND120 billion by the end of July 2013, purely from the transportation services.

Time of budget airlines?

Aviation experts have commented that the market is witnessing a stiff competition between the traditional and budget airline models, for which Vietnam Airlines and Vietjet Air are the representatives.

They have noted the decreased market share held by Vietnam Airlines, even though it is believed to have great advantages over the others thanks to the experiences and financial capability.

CAAV in December 2013 reported that Vietnam Airlines’ market share has fallen to 57.1 percent of the domestic air transport market, while Vietjet Air’s market share has increased from 20 percent in August to 26 percent. The other two, Jetstar Pacific, also a budget airline, holds 15.2 percent, and VASCO 1.5 percent.

As such, budget airlines now hold 41 percent of the domestic air transport market, which is far higher than the 35 percent market share predicted by Luong Hoai Nam, a well-known expert, when talking about the rise of the budget airline in Vietnam.

Nam believes that the figure would be 60 percent in the near future.

The advantages of the budget airline model partially explain why Jetstar Pacific has begun making profit after many years of taking loss.

Ngoc Ha