August 18, 2019 16:36

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Does the aviation sector change with the entry of a new airline?

13:33 | 14/08/2019

VCN - In July, Vietnam’s aviation market welcomed the entry of a new airline, bringing the current number of Vietnamese airlines to six. Many experts believe that strong growth and the entry of new airlines might create a risk of irregular competition.

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Vietnam Airlines currently accounts for 35.9% market share of customers with 33 routes. Photo: collection.

Who benefits?

In July, the Vietnam aviation market welcomed Viet Star Airlines Multirole Joint Stock Company (Vietstar Airlines). This is also the first airline to be granted a commercial AOC (Aircraft Operator Certificate) for commercial jets in Vietnam. Two types of licensed aircraft are Embraer Legacy 600 and Beechcraft King Air B300. Vietstar Airlines will provide VIP services for individuals, organizations and enterprises both at home and abroad. Thus, currently, Vietnam has six airlines, including Vietnam Airlines; Jetstar Pacific; Vasco; Vietjet Air; Bamboo Airways and Vietstar Airlines.

According to the Civil Aviation Authority of Vietnam (Ministry of Transportation), in the first 6 months of this year, the growth of air passengers slowed, reaching 9.4% (compared to 14% of the same period in 2018) and 38.5 million visitors. Passenger volume through Vietnam's airports reached more than 57 million arrivals, an increase of 9% compared to the same period of 2018. Vietnamese airlines' transport reached approximately 27 million passengers, increasing 7.7%.

Currently, Vietnamese airlines operate 48 domestic routes connecting 22 airports. Specifically, Vietnam Airlines operates 33 routes, Vietjet Air operates 35 routes, Jetstar Pacific operates 23 routes, Vietnam Air Service Flight Company (VASCO) operates 9 routes, and Bamboo Airways operates 24 routes.

Mr. Ho Quoc Cuong, Head of Air Transport Department, the Civil Aviation Authority of Vietnam, said that in 2018, Vietnamese airlines' transport reached nearly 50 million passengers, an increase of 10.1% compared to 2017 and over 400,000 tons of goods, up 27.2%. This shows that the demand of the Vietnam aviation market as well as the demand of international aviation market to Vietnam is very large, with much potential and development opportunities. However, growth has slowed due to inadequate infrastructure. In the future, if the aviation infrastructure is improved, the prospects of Vietnam's aviation market will be achieved.

Many aviation experts say that along with the emergence of new airlines, the first beneficiaries will be the people. Because the participation of private airlines helped break the monopoly in aviation business, from the means only for high-income people, it has now become a popular means of travel for everyone. It can be easily seen that after participating in the aviation market, Vietjet Air has quickly captured a large market share in the aviation sector. The report of the Vietnam Aviation Administration showed that in the first 6 months, 4 domestic airlines – Vietnam Airlines, Vietjet Air, Jetstar Pacific, and Bamboo Airways – transported a total of 18.3 million passengers, up 6.2 % compared with the same period in 2018. Of which, Vietjet accounted for 44% of market share, Vietnam Airlines accounted for 35.9% VASCO 2%, Jetstar Pacific accounted for 13.9% and Bamboo Airways accounted for 4.2%.

Strategic plan

Similar to other business sectors, reducing ticket prices and increasing the number of aircraft in order to quickly dominate the market, especially in crowded areas and where the number of passengers is not high, will cause fierce competition in terms of price, making enterprises sink into losses, eliminating each other and leaving long-term consequences for the economy. These are also challenges that airlines are facing. According to Assoc. Prof. Ph.D. Tran Dinh Thien, Director of the Vietnam Institute of Economics, competition creates great motivation for development and consumer benefits. In order to avoid fierce competition and unfortunate consequences for airlines, first of all, it is necessary to have strategic planning with conditions and rules in which market entry does not distort competition.

Agreeing with Assoc. Prof. Ph.D. Tran Dinh Thien, Prof. Ph.D. Tran Tho Dat, Rector of National Economics University, also said that competition in the aviation must be conditional business, and one of the important conditions is to put the passenger safety first. Therefore, it is necessary to have conditions to limit dumping. Any airline that is unable to bear losses for a long time goes bankrupt because there is no State sponsorship. The State should make regulations to consider the capabilities and conditions of airlines, forecast market information for appropriate development planning and solutions to anticipate failures.

Mr. Le Manh Hung, General Director of Vietnam Airport Corporation, said that the competitiveness of an airline depends on business strategy to management, operation method, as well as human resources, but it is clear that the development is very large, and there is interaction. If the infrastructure is well developed and modern, the airlines will operate better, leading to fierce competition. Therefore, for aviation development, development planning including infrastructure must be one step ahead. If a company wants to open a flight, it first has to open an airport. This demand is very large, and in fact we have had a lot of efforts over the years, but it is necessary to develop further to meet demand.

Assoc. Prof. Ph.D. Tran Dinh Thien:

As there are so many car manufacturers in Vietnam causing instability for a lot of car manufacturing companies, or unmanageable issues for Grab. This is a lesson for the aviation market. First, it is necessary to establish a playground with relatively safe conditions for competitors, this can only be guaranteed to be fair by law. In addition, there should be supervision of equal competition, standards, rules and monitoring must be based on standards.

By Xuan Thao/ Binh Minh