The contrasting picture of railways and aviation

Railways grow strongly from the bottom

The financial report for the third quarter of 2023 recently announced by Hanoi Railway Transport Joint Stock Company (VTĐS) surprised with a profit after tax in the third quarter reaching more than 54 billion VND, more than 3 times higher than the same period last year. This is also a record quarterly profit in the company's history. In the first 9 months of 2023, Hanoi Railway Transport achieved more than 1,895 billion VND in net revenue and 98 billion VND in profit after tax, up 9% and 178% respectively over the same period. In 2023, Hanoi Railway Transport Joint Stock Company set a target of 2,517 billion VND in net revenue and 500 million VND in profit after tax. However, after only 9 months, this enterprise has achieved 75% of the revenue plan and far exceeded the annual profit target.

The railway industry is witnessing a strong transformation.

Similarly, the financial report for the third quarter of 2023 of Saigon Transport Corporation is also "sparklingly beautiful" with a profit after tax of VND 43 billion in the third quarter, an increase of nearly 130% over the same period last year, and a record quarterly profit ever. In the first 9 months of 2023, Saigon Transport Corporation recorded nearly VND 1,400 billion in net revenue and VND 81 billion in profit after tax, up 11% and 110% respectively over the same period. With this result, the company has achieved 77% of the revenue plan and achieved a profit of more than 130 times higher than the target of 600 million VND for the whole year of 2023. The leader of Saigon Railways said that in the first 9 months of 2023, the travel demand of domestic and foreign tourists increased, especially during the Lunar New Year and summer 2023. Therefore, the company's passenger and cargo transportation revenue in the first 9 months had a strong growth compared to the same period last year.

Chairman of the Board of Directors of Vietnam Railways Corporation (VNR) Dang Sy Manh said that the past 5 years have been a very special period in the history of formation and development of VNR. In addition to "traditional" difficulties such as old, outdated infrastructure systems, single tracks, many truncated connecting routes, limited customs clearance capacity, and unsynchronized vehicle systems... global political instability has caused inflation, high fuel prices, affecting the maintenance of competitive fares compared to other means of transport. Especially in the 3 years of 2020, 2021, 2022, VNR did not achieve its output and revenue targets, mainly due to being severely affected by the Covid-19 pandemic. Identifying the need for a "transformation" after the pandemic, with support policies, stimulus and reopening of production and business activities, VNR quickly seized the opportunity, actively implementing many important solutions to restore freight and passenger transport by rail.

Specifically, for freight transport, we have actively and effectively exploited express freight trains, specialized freight trains, and international railways with container trains going to China, transiting China to Belgium, Russia, Central Asia and European countries... Transport businesses have launched new products to meet the market such as refrigerated container trains, specialized container trains going to China and transiting China to third countries in Europe, Russia, Mongolia, Central Asia... This is the reason why in recent years, the output of international railway freight has increased by an average of 6% per year.

Regarding passenger transport, along with improving the quality of vehicles and service quality, VNR has implemented a flexible fare policy and put into operation experiential tourism products by rail such as Hanoi - Hai Phong food tour; luxury train route Da Nang - Quy Nhon (The Vietage)... which have been well received by customers. VNR has also invested in upgrading infrastructure, signal information, stations serving transportation; promoting digital transformation, improving ticket sales systems; digitizing infrastructure...

"In the coming period, VNR still determines that promoting international intermodal transport activities is a solid step on the journey to regain the position of the trains. At the same time, focusing on solving bottlenecks in passenger transport; strengthening the construction and communication of the beautiful image of the North - South railway to create sympathy, and at the same time organizing home pick-up services to attract people, passengers, especially tourists, to gradually return to the railway", Mr. Dang Sy Manh informed.

Airlines still struggling to cover expenses

While the railway industry is gradually regaining its "sense of speed", the aviation industry has yet to find a way out of its historic difficulties. The State Capital Management Committee at Enterprises recently estimated that the national airline Vietnam Airlines may record its fourth consecutive year of losses with a pre-tax loss of more than VND4,500 billion this year. The boards of directors of Bamboo Airways and Vietravel Airlines also said that they were still losing money in the first half of the year. Vietjet Air alone reported a profit of VND135 billion at the end of the second quarter, down 5.5% compared to the same period last year, but largely thanks to strong growth in the ancillary, ownership transfer and aircraft trading segments.

Vietnam's aviation industry has yet to escape from its difficult situation.

According to the explanation of the leader of Vietravel Airlines, Vietnam's aviation infrastructure is still in the process of development, so the overload situation is putting pressure on the recovery and development of the industry. During peak periods such as holidays, Lunar New Year, etc., demand increases but the infrastructure is congested, causing airlines to have passengers but not be able to serve at full capacity. Not to mention that after 2 years of the pandemic, business activities have frozen, there is no source of revenue but there are still costs to maintain the apparatus. Currently, although the situation has recovered, the airline is still under pressure to repay previously incurred debts with high interest rates in recent times. In addition, the most important factor is that airlines are in a situation where the airfares sold are not enough to cover costs.

"Unlike other sectors, in addition to fuel costs, other variable costs such as technical, flight operations services; aircraft take-off and landing; aircraft parking fees; check-in counter rental, premises, warehouses, etc. at airports account for about 65 - 80%. The fixed cost part accounts for 20 - 35% and depends on each airline. Therefore, to optimize costs, the ability to cut or increase efficiency from costs cannot change too much. Customers complain that airfares are too high, but in reality, airlines are selling below cost," he said.

A representative of Vietnam Airlines said that the average fuel price in 2023 compared to 2015 (when the current price frame was applied) has increased by 58.6%, from an average of 67.37 USD/barrel in 2015 to 106.86 USD/barrel in 2023, causing Vietnam Airlines' costs to increase by over 8,000 billion VND. Not to mention, more than 70% of air transport costs are in foreign currency while ticket sales revenue in Vietnam is in VND. Exchange rate fluctuations between USD and VND are directly affecting the business performance of airlines. "If the price of jet fuel increases or decreases by just 1 USD/barrel, it can increase/decrease this year's fuel costs by about 224 billion VND. In addition, if the USD/VND exchange rate at the end of 2023 increases by 100 VND compared to the expected accounting plan, it will reduce Vietnam Airlines' profit by about 74 billion VND due to the revaluation of long-term USD loans," said a representative of Vietnam Airlines.

Subjectively, airlines need to review their management and human resources to see if they have been optimized. In addition, the management agency is also responsible because in the past, the aviation industry was considered a monopoly, with enterprises holding a dominant position, so price ceilings had to be applied. So in the current context, it is necessary to look back to see if the problems of the aviation industry have been handled satisfactorily and promptly. Developing railways and increasing transport competition are necessary. However, aviation is an important field, directly accompanying the development of the tourism industry. If tourism has been determined to become a spearhead, it cannot be neglected, allowing aviation to continue to face difficulties like now.

Economist, Associate Professor, Dr. Ngo Tri Long

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