Sky-High Competition: Vietnam’s Budget Airlines

HANOI – Budget airlines in Vietnam are seeing strong growth and are taking a large bite out of the market share of the more established traditional airlines. The airline industry as a whole has seen a remarkable increase in the amount of passengers carried and revenues earned.  The country’s Ministry of Transport has announced that all of Vietnam’s domestic airlines made a profit in 2013.

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The two main airlines in Vietnam are the government owned Vietnam Airlines and the privately owned VietJet Air.

As the airline industry grows and matures, Vietnam is seeing increased competition between budget and more traditional airlines.

The national flag carrier, Vietnam Airlines, reported a 2013 revenue of VND 72.555 trillion and a pretax profit of VND 533 billion.  However, Vietnam Airlines, a traditional airline, has seen a marked decrease in its market share as it has seen increased competition from other domestic carriers.  The airline currently holds 57.1 percent of the market.

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While it has not yet released its 2013 financial report, VietJet Air is expected to see strong earnings on the back of the company tripling the amount of passengers it served during the year – 3.2 million passengers.

VietJet Air has seen its market share rise to 26 percent, an increase of six percent since August of last year. Two other budget airlines make up most of the remaining portion of the air market: Jetstar Pacific with 15.2 percent and VASCO with 1.5 percent.

A wave of aircraft purchases by Vietnamese airlines has been spurred on by access to cheap interest rates. However, Vietnam Airlines has not joined in on this buying spree.

VietJet is aggressively expanding its operations.  The airline has recently finalized a purchase agreement worth US$6.4 billion for 63 Airbus A320 aircraft, plus the purchase rights for 30 more planes. It will also lease eight more A320 Family aircraft from third party lessors. The airline will use the new planes to further develop its business across the Asia-Pacific region.

Founded in 2011, VietJet was Vietnam’s first private airline to operate both domestic and international flights.

Throughout Asia, the airline industry is seeing impressive growth and this is predicted to continue for some time into the future.  Fabrice Bregier, the president and chief executive of Airbus, has stated that “In Asia, we expect a [passenger traffic] growth year-on-year of close to 6.0 percent for the next 20 years. In Vietnam, it will be close to 30 percent year-on-year. This is really impressive.”

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Bregier also described VietJet as a “rising star” in Southeast Asia’s low-cost carrier market.

It is predicted that by 2032 the passenger market fleet of Asia-Pacific carriers will more than double from 4,960 to over 12,130 aircraft.

The aerospace company, Boeing, has also stated that the Asia-Pacific will require almost 13,000 new airplanes worth $1.9 trillion over the next 20 years.

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