Private air carriers struggle to take off

Although Viet Nam has been heading for an Open Sky for airlines in the region, domestic private carriers are still struggling to get off the ground.

Five private airlines have been licensed since the first license was granted by the Vietnamese Government to a private airline in the country nearly four years ago.

But only Air Mekong is operating its flights on domestic routes.

The other four licensed airlines – Indochina Airlines, VietJet Air, Trai Thien Air Cargo and Blue Sky Air – are still grounded, the Saigon Economic Times reports.

Delays

VietJet Air, the first private airline licensed in the country, was expected to start flying in August last year but it has delayed the plan.

The carrier, which sold a 30 per cent stake to Malaysia’s low-cost carrier AirAsia in February last year, planned to launch its maiden flight in August last year under the name VietJet AirAsia.

However, the carrier has not announced any plans to reschedule its maiden flight after being warned by the Civil Aviation Authority of Viet Nam (CAAV) to not use trademarks that could be confused with AirAsia.

Trai Thien Air Cargo, Viet Nam’s first private cargo carrier licensed in October 2009, planned to commence its first flight between Ha Noi and HCM City in June 2010, targeting garments, electronics and foodstuffs companies as potential customers.

The HCM City-based carrier, which planned to develop a fleet of 10 freighters to transport export and import goods of local companies, is still grounded.

Company’s deputy director Le Giang Long admitted that the airline had met some financial difficulties, leading to tardiness in paying salaries to its staff.

Vo Huy Cuong, head of the CAAV’s Air Transport Departmen, said VietJet Air was still grounded because it had not obtained an Air Operator’s Certificate (AOC) while Trai Thien lacked sufficient staff.

Meanwhile, Blue Sky Air, another new carrier, said it would also have its own niche market, using helicopters for its on-demand services.

Blue Sky Air has demonstrated its advantages with the in-flight tourism services, which serve business-class passengers.

With about 20 tourist destinations registered and the ability to take off and land in various topographic and tourist destinations, Blue Sky Air expects to satisfy the diversified needs of the society.

However, the new carrier has yet to begin operating.

Meanwhile, Indochina Airlines, the first private carrier to operate flights in Viet Nam, suspended its services in mid-2010 due to debt problems.

The Air Transport Department said the airline had two and a half months to resume its services with a certificate from CAAV or stayed permanently closed.

According to the online newspaper VnExpress, as of early 0ctober 2010, the carrier was VND31 billion (US$2.05 million) in arrears with fuel costs, air tickets and in-flight food, including arrears of VND21 billion from the fuel supplier Viet Nam Air Petrol (Vinapco).

CAAV had ordered Indochina to settle all the debts with its creditors by mid-October, but so far the company has not reported on the issue yet.

“It seems like private carriers have limited capabilities in terms of finance and management,” said Cuong.

Fierce competition

Soon after joining the local market, local and joint-venture carriers operating on domestic routes have faced fierce competition from the national carrier Viet Nam Airlines and the low-cost carrier Jetstar Pacific which tried to boost sales with lower airfares.

Viet Nam Airlines had offered discounts of up to 50 per cent on domestic flights, with its airfares priced between VND400,000 and VND860,000, while Jetstar Pacific sold 1,000 tickets at only VND100,000 from September 9 to October 10.

The competition would become tough on new players like Air Mekong and Blue Sky Air, said Cuong.

Air Mekong has received many complaints from passengers and ticket agents after calling off its flights.

The carrier, which was approved to operate 21 flights from Ha Noi and HCM City to Da Nang in central Viet Nam between October 30 and November 16, had suspended its flights to Da Nang only two months after it started operation, due to a lack of profitability.

A representative from Air Mekong said each airline had its own strategy and Air Mekong would focus on business class services.

Air Mekong resumed its scheduled services to Da Nang from January 20, aiming to provide more seats during the peak season for domestic air travel.

The carrier had to suspend its Da Nang service in November 2010, about two weeks after it started this service, because of low seating capacity on its nine-seat Bombardier CRJ-900 aircraft.

To better use its fleet, from January 26, the carrier increased frequencies of its services from HCM City to the central Highlands’ Buon Ma Thuot and Pleiku from one to two daily flights for each route, while reducing the frequency of its HCM City-Con Dao flights from daily to three flights per week.

The Viet Nam Competition Council has also intervened in the disputes between carriers and the jet-fuel supplier Vinapco, an affiliate of the State-owned Viet Nam Airlines.

The Council said at a public hearing in April 2009 that the fuel supplier Vinapco had abused its monopoly position and flouted the Law of Competition when cutting off supplies to Jetstar Pacific Airlines without justification on April 1, 2008.

The supply cut, which happened as the two sides were arguing over a price increase, caused a delay that grounded 30 flights with some 5,000 passengers before the government then ordered Vinapco to resume supply.

A court in Ha Noi rejected in early January 2011 an appeal by Vinapco and demanded that it pay a VND3.4-billion fine for cutting off supplies to a local carrier, saying that the fine handed down by the Council was appropriate.

Vinapco has also filed a lawsuit against the Indochina Airlines for not paying a debt of VND25 billion.

Opportunities

Jetstar Pacific’s profitability has caused many to think that there are opportunities for other private carriers to compete in the local market.

Ha Dung, CEO of Indochina Airlines, was quoted by Sai Gon Marketing magazine as saying that the local aviation market had improved.

Dung said he had a plan to re-structure the carrier with an increase of legal capital to VND500 billion ($25 million), so that the company could buy aircraft and recruit pilots and air attendants. However, many doubted his claims.

Do Anh Tuan, managing director of Trai Thien Air Cargo, said sales in Viet Nam’s airline market would rise on huge demand from local passengers and businesses because other kinds of inland and waterway transport were still underdeveloped. — VNS

Tags: Vietnam aviation, Vietnam aviation industry, Vietnam aviation market