New airlines struggle to get off ground

Domestic and foreign investors should consider carefully before deciding to invest in the nation’s aviation market, cautions former Indochina Airlines managing director Le Hong Pho.

Since 2007, aviation industry has welcomed a number of new private carriers with open arms, including VietJet Air, Air Mekong, Trai Thien Air Cargo and Blue Sky.

However, skies have suddenly turned gloomy. Indochina Airlines is preparing to appear in court, with debts nearing VND70 billion (US$3.3 million). Vietjet Air has postponed flights for several times, and Trai Thien Air Cargo is having difficulties keeping to its schedule. Meanwhile, Blue Sky hasn’t even launched its first flight, and Air Mekong just got off the ground this past October.

Indochina Ailrines launched its first commercial flight in November 2008 and has operated ineffectively. Its fuel supplier, Viet Nam Air Petro Co (Vinapco), has sued Indochina for a debt at VND24 billion ($1.14 million), ticket sales agents and the carrier’s employees also commencing legal proceedings againt the airline.

Deputy Minister of Transport Pham Quy Tieu, overseeing the case, said that the ministry had withdrawn permission for Indochina to continue its flights and the withdrawal of its business licence seemed likely.

In February, the Ministry of Transport also modified the licence of VietJet Air after the Malaysia’s AirAsia acquired a 30-per-cent stake in the airline. Vietnam Airlines complained about the deal, however, because AirAsia also gained the right to participate in VietJet Air’s management board.

AirAsia was also unhappy with a ruling that the new joint venture’s planes couldn’t bear the AirAsia logo. The ministry explained that it was trying to avoid misleading of consumers into thinking that a foreign carrier was operarting in the domestic market. The issue continues to delay commercial flight plans of VietJet Air.

Air Mekong, 30 per cent owned by US airline SkyWest, operates 32 daily domestic flights linking Ha Noi, Da Nang, HCM City and Phu Quoc Island with the 70 per cent occupancy on each flight.

Air Mekong deputy director Doan Quoc Huy said that, in 2011, the company expected to add six aircraft, lifting its fleet to 10 aircraft to satisfy rising demand.

Experts attributed the poor performance of private carriers to a lack of world-class experience, weak financing, and a shortage of qualified workers.

An anonymous official from Jetstar Pacific Airlines affirmed that one of the biggest obstacles facing private investors in the aviation industry was the lack of financial resources sufficent to operate this kind of capital-intensive business that includes such expensive inputs as fuel, maintenance and salaries, all based on the income stream from ticket sales.

The charter capital of each private airline now ranges from VND200 to VND600 billion ($9.5-28.6 million), so many are seeking investment from foreign partners who could support them not only in capital but also in training, aircraft maintenance and international experience.

Jetstar Pacific deputy director Ta Huu Thanh said that liberalisation of the aviation industry could only succeed if there were healthy competition with State-subsidised airlines.

Thanh urged the Government to adopt policies that would ignite private investment in the aviation sector. — VNS

Tags: Vietnam airlines