VietNamNet Bridge - Low-cost carriers dominate the aviation industry in Southeast Asia, such as in Malaysia and Singapore, but the playing field is still not level for budget airlines in Vietnam.
When former Singaporean Prime Minister Lee Kuan Yew paid a visit to Vietnam
recently, many Vietnamese people were taken aback when he flew on Tiger Air, a
low-cost airline, rather than the national carrier Singapore Airlines.
In less developed aviation markets, people tend to see budget airlines as less
prestigious than traditional carriers, but Lee Kuan Yew chose an airline that
focuses on offering customers efficient services and low-cost fares.
But what better way could there be to promote a private carrier, not to mention
encourage his peers and nation’s citizens to choose budget carriers, than by
traveling by air?
The former Singaporean PM is not alone in making this choice. Even the
billionaire owner of IKEA, Mr. Ingvar Kamprad, often flies with low-cost
carriers. Pope Francis - in a bid to implement a more frugal approach to the
Vatican’s affairs - has also been known to demand his bishops fly to Rome on a
budget airline.
Low-cost carriers currently dominate traditional airlines in developed markets.
Within Southeast Asia, low-cost carriers such as Lion Air (Indonesia), Air Asia
(Malaysia), Nok Air (Thailand) and Tiger Air (Singapore) operate up to thousands
of aircraft, accounting for 65-70% of market share in domestic markets.
As private airlines, low-cost carriers everywhere operate under completely
transparent supervision while contributing high levels of tax to their home
country’s state coffers. It’s worth underlining that privately owned airlines
will operate by using market capital rather than state funding.
In Vietnam, the market share of budget airlines is at just over 30 percent. The
irony is that Vietnam has a much lower per capita income but Vietnamese on
average still tend to spend more on airfare compared to neighboring countries.
However, industry observers have noted that a lack of fair competition and
transparency is currently limiting the growth of low-cost carriers in Vietnam.
As the national carrier, Vietnam Airlines has enjoyed little by way of
significant competition in recent years and still benefits from plenty of
preferential treatment. For example, the airline enjoys superior airport
facilities and runway priority nationwide.
This would be a disadvantage for any airline trying to compete. The national
carrier is notably also a shareholder in companies such as Petrolimex, VAECO,
Noi Bai catering services, Tiags, Niags and others, all of which provide
ground-handling services to airlines.
However, the rise of privately-owned, low-cost carriers such as VietJet and Jet
Star (a joint venture between Jet Star and Vietnam Airlines) has signaled the
arrival of a new era for the aviation industry at home and their exponential
growth is placing pressure on authorities to level the playing field for all
carriers operating in Vietnam.
VietJet, the only wholly privately owned airline, which operates both domestic
and international flights, is now the country’s fastest growing airline.
Where other privately owned airlines, such as Air Mekong, Trai Thien Air Cargo,
Indochina Airlines, and Blue Sky Airway, have failed, VietJet has gained a
strong foothold in the market helping to diversify air travel and boost domestic
tourism.
Over the last year, the ratio of domestic air travelers accounted for 21.5
percent compared to the previous year. In the first quarter of 2014, the
relevant number has increased by 21 percent in comparison to the same period of
last year.
It is estimated that Vietnamese air travelers could collectively save VND9
trillion (over US$428 million) this year by using budget airlines, if each
traveler saved on average VND500,000 ($25) per flight.
Whether a person is traveling for business, pleasure or for affairs of the
State, this is significant. With more people cutting their transport costs,
small businesses will benefit from consumers’ extra spending power, and more
businesses across all industries will benefit from extra investment. And the
government will be able to reduce its own expenditures.
Elsewhere, the market clearly shows low-cost carriers have become the airlines
of choice. Air Asia, the largest privately owned airline in Asia with over 12
years of market experience, currently operates an extensive flight network
across the region, flying more than 220 million passengers with a fleet of over
100 Airbus aircraft A320. The airline earned US$400 million in profit last year
alone.
Finishing the fiscal year of 2013, RyanAir (Europe) achieved a turnover of
nearly $800 million. Southwest Airlines (USA) and Jetstar (Australia) also
earned good profits and contributed more tax to their home states than
traditional airlines.
In Vietnam, for now, budget airlines remain hindered by a lack of fair
competition and transparency but it’s clear that the country would benefit as a
whole by leveling the playing field so the aviation industry can reach new
heights.
PV