On April 1, Bloomberg reported that Malaysian low-cost carrier AirAsia planned to partner up with two domestic firms to start an airline in Vietnam. However, available information draws questions over the plan’s legitimacy and feasibility.

Little information

Talking to VIR, an official from the Department of Enterprise Management under the Ministry of Transport said that AirAsia has yet to submit an official application to establish a joint venture with Gumin and Hai Au Aviation.

Civil Aviation Authority of Vietnam said the first time it heard of the news was from the media. 

“Hai Au, Gumin, and AirAsia. None of them has applied for a certificate to do business in air transport,” said Vo Huy Cuong, deputy director of CAAV.

Hai Au has a license to provide general air transport for commercial purposes, with a fleet of four amphibious airplanes. 

Gumin, which operates in management consultancy, has only started operation on March 29.

Official information is forthcoming only from Thien Minh Group. 

According to the company’s website, the new airline is going to start operation in 2018 after being ratified by the Vietnamese government. 

The new airline is going to provide “high-quality service at affordable prices.”

An expert said that it is currently unclear whether this airline is going to be a new entity or part of Hai Au. 

However, given the time that it normally takes to obtain a license to fly commercially, the joint venture is unlikely to get a license by the end of 2018. 

Vietstar One-member Co., Ltd., which applied for a license to provide air transport services in July 2016, is still waiting.

Narrow window

This is AirAsia’s third attempt in 10 years to join hands with a Vietnamese partner to set up an airline. 

Earlier, Air Asia made an agreement with Vinashin (now Vietnam Shipbuilding Industry Corporation) in 2007 and with Vietjet in 2010 to set up the second foreign-invested airline in Vietnam after Jetstar Pacific. 

For one reason or another, these plans failed to materialise.

At the moment, AirAsia has two airlines that fly frequently to Vietnam, Thai AirAsia (FD), which flies from Thailand, and AirAsia Berhad (AK) which flies from Malaysia. 

There was also Indonesia AirAsia which used to fly from Indonesia, but at the moment this activity has been suspended.

The Vietnamese aviation market sees ripe competition from Vietnam Airlines and SkyViet/VASCO, as well as two low-cost airlines, namely Vietjet and Jetstar Pacific, the former of which is considered to be on par with big regional airlines, such as AirAsia, in terms of capital and governance ability.

The growth in demand still outpaces the growth in supply. However, in the first quarter, demand  showed signs of slowing growth.

Moreover, the price of airplane fuel is increasing sharply, affecting the profit of airlines. 

The average price in January this year was $65.15 per barrel, up 1.57 per cent compared to December 2016. 

CAPA Centre for Aviation expects that the profit margin for global air transport will decrease from 8.3 per cent in 2016 to 7.4 in 2017 and further to 6.6 in 2018, due to the increasing price of fuel and the surplus in airplanes as airlines have been buying too many of them recently.

“AirAsia is very late to the party in Vietnam and as a result faces huge challenges,” said Brendan Sobie, Singapore-based chief analyst at CAPA Centre for Aviation at a recent interview with Bloomberg on the issue. 

“The market is now well served by two low-cost carriers, VietJet and Jetstar Pacific. The rate of growth will likely slow in the coming years as the market is now more mature.”

VIR