Exchange rates, jet fuel prices, international conflicts and difficulties in replenishing fleets during the summer peak season will be “headwinds” that could slow the recovery of Vietnamese airlines.
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| The story of Pacific Airlines “freezing” in May 2024 was predicted. Photo: Duc Thanh |
Uneven recovery
For the first time in 33 years of operation, the passenger transport output of Pacific Airlines Joint Stock Company (Pacific Airlines) recorded in the Production and Business Results Report on Transportation - Loading and Unloading in May 2024 (from April 15 to May 15) of the Civil Aviation Authority of Vietnam is a round number 0.
Previously, in April 2024 (from March 15 to April 15), Pacific Airlines also only transported 32,727 passengers, equal to 1/3 of the output of Vietravel Airlines - the "youngest" airline operating only 3 Airbus 320/321 aircraft.
In fact, the story of Pacific Airlines “freezing” in May 2024 was predicted, after the low-cost airline returned its last aircraft early at the end of March 2024. This is also the first time that the Vietnamese civil aviation industry has recorded a case of an airline owning an air transport business license without operating any aircraft.
According to a representative of Pacific Airlines, the airline is urgently negotiating with foreign aircraft leasing units to be able to lease 1-3 aircraft in order to resume operations in June 2024 as required by the Civil Aviation Authority of Vietnam.
Pacific Airlines is not the only one that has had to cut its fleet size. Previously, Bamboo Airways - an airline that used to operate up to 30 aircraft, and at its peak not long ago held nearly 20% of the domestic passenger market share - had to return 22 aircraft early. This popular airline now operates only about 8 narrow-body Airbus 320/321 aircraft, while the minimum size for an airline to be profitable is about 30 aircraft.
It should be added that although the demand for domestic and international travel and tourism has been recovering strongly since the beginning of 2023, not all 6 units owning air transport business licenses have recorded positive business results.
Among the units that have begun to balance their income and expenditure, moving towards making a profit in their main business lines, in addition to the two "big guys" Vietnam Airlines and Vietjet, we can mention the case of Vietravel Airlines.
Specifically, Vietravel Airlines exceeded its target with revenue in March 2024 reaching VND 172.3 billion, an increase of more than 54% compared to the plan. Thus, for the first time after more than 3 years of operation, Vietravel Airlines has made a profit for 3 consecutive months, bringing business results in the first quarter of 2024 with revenue reaching VND 491.2 billion, an increase of nearly 42% and net profit reaching VND 10.1 billion.
Previously, Vietnam Airlines announced that it achieved VND 28,268 billion in sales and service revenue in the first quarter of 2024; net revenue from sales and service provision was VND 27,964 billion; gross profit from sales and service provision was VND 4,084.9 billion; net profit from business activities was VND 900 billion; profit after corporate income tax was VND 4,441 billion, of which profit after tax of parent company Vietnam Airlines was VND 4,334 billion.
This is the largest consolidated profit after tax in the first quarter that Vietnam Airlines has achieved since switching to a joint stock company model in 2014. However, most of Vietnam Airlines' profit came from Pacific Airlines negotiating to return all leased aircraft to the shipowner and handling debts, helping the Corporation record a sudden increase in other income items (more than VND 3,500 billion), contributing significantly to the consolidated profit in the first quarter of 2024.
Also in the first quarter of 2024, Vietjet's air transport revenue - the leading airline in domestic and international passenger transport market share in the first 5 months of 2024 - reached VND 17,765 billion, profit after tax reached VND 520 billion, up 38% and 209% respectively over the same period in 2023. Vietjet recorded consolidated revenue and profit after tax of VND 17,792 billion and VND 539 billion respectively, up 38% and 212% over the same period in 2023.
For the remaining airlines, the business situation is still very difficult, some airlines owe salaries to employees, flight attendants, and pilots for 2 to 3 months; pilots only fly a few flights per month to maintain their qualifications; the ability to operate continuously depends entirely on the "oxygen" source from the parent company/shareholders. Even some airlines that have recorded profits in the recent past are considering continuing to cut salaries and allowances for employees because the profits made in the recent past are still not enough to offset the huge losses incurred during the Covid-19 period.
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Potential risks
A characteristic of Vietnamese air transport enterprises in the first 5 months of 2024 is the increasing dependence on international routes.
In the first quarter of 2024, Vietnam Airlines' international air transport revenue will reach more than VND 13,800 billion, an increase of 30.4% over the same period in 2023. The contribution of international flights to Vietnam Airlines' air transport revenue will reach 65%, 3 times higher than the bottom in 2021. The proportion of international flights and air transport revenue is also approaching pre-pandemic levels, very close to the level of the first quarter of 2019.
Vietjet's international passenger transport volume in the first quarter of 2024 also increased by more than 53% and 61% in terms of the number of flights and passengers compared to the same period in 2023. In the first quarter of 2024, Vietjet opened 15 new international and domestic routes, bringing the total number of routes to 140. The airline continuously announced and launched new international routes including Phu Quoc - Taipei (Taiwan, China), Ho Chi Minh City - Chengdu, Xi'an (China), Ho Chi Minh City - Vientiane (Laos) and routes from Hanoi to Hiroshima (Japan), Sydney, Melbourne (Australia).
Meanwhile, the basic economy class fares on domestic routes of airlines have all increased, but not enough to cover the costs. In the period from January 1, 2024 to April 30, 2024, compared to the same period in 2023, with 3 routes including Hanoi - Ho Chi Minh City, Hanoi - Da Nang and Ho Chi Minh City - Da Nang, the average fares of airlines have increased respectively as follows: Vietnam Airlines is 19.9%, 28.4% and 14.9%; Vietjet is 17.9%, 39.9% and 27%; Bamboo Airways is 2.1%, 24.4% and 22.5%, Vietravel Airlines is 10.2%, 17.7% and 18.6%.
“If an airline only operates domestic routes or operates international routes with low frequency, especially routes connecting Northeast Asia, it will be very difficult to balance revenue and expenditure,” an airline representative affirmed.
In addition to the low level of competition, fuel surcharges on international flights also help airlines reduce risks. It is worth mentioning that although the mandatory increase in airfares on most domestic routes helps airlines gradually balance their revenues and expenditures, it will cause a large number of passengers to be lost to other sectors such as railways and roads.
The fact that Vietnam Railways Corporation continuously launches high-quality trains with distances under 1,000 km and in the first 5 months of 2024, the transport industry will put more expressway routes into operation are also factors affecting the revenue of airlines in the coming time.
According to Mr. Dinh Viet Thang, Director of the Civil Aviation Authority of Vietnam, among the major risks that could slow down the recovery of Vietnamese airlines, we must mention the shortage of aircraft fleet.
It is known that by the end of April 2024, the fleet of Vietnamese airlines was 213 aircraft, a decrease of 18 aircraft compared to 2023. Of which, the number of aircraft in actual operation fluctuated from 165 to 170 aircraft, a decrease of about 40-50 aircraft compared to the average in 2023.
It is expected that during the peak summer period of 2024 (from June to the end of August), airlines will operate 178 aircraft (including aircraft expected to be leased with and without crew), a decrease of 38 aircraft compared to the summer of 2023 due to a large number of AirbusNeo aircraft of Vietnam Airlines and Vietjet stopping operations due to the global engine recall by engine manufacturer Pratt & Whitney (PW).
The engine recall has seriously affected the fleet size and operating plans of airlines. However, up to now, the PW manufacturer has not provided any information on support or compensation for the two affected airlines, disrupting the supply chain and operating activities while waiting for repairs.
“Meanwhile, Vietnamese airlines, in addition to having to reduce the size of their fleet and being unable to operate, still have to maintain management costs for aircraft that have to be grounded and stopped operating due to engine recalls,” said Mr. Dinh Viet Thang.
Although the summer peak is the most important business period of the year for the aviation industry, a representative of Vietnam Airlines said that the upcoming wet leasing of aircraft is even more difficult than the Tet peak, because this is the low season for the European and American aviation markets. In the summer, international aviation also enters its peak, so many airlines need to add aircraft, pushing up rental prices.
In addition, there is pressure to increase the USD exchange rate compared to the domestic currency in many countries around the world, which affects the business operations of airlines; armed conflicts in some countries and regions affect the supply chain of products, materials, and equipment in the aviation industry, and can also change and prolong the schedules and flight routes of flights...
“The above issues will be a burden on the management and operational costs of airlines in particular, as well as businesses in the aviation industry in general,” said the leader of the Civil Aviation Authority of Vietnam.
Source: https://baodautu.vn/an-so-va-rui-ro-tren-thi-truong-hang-khong-viet-nam-d215299.html
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