VietNamNet Bridge – It is undeniable that Vietnam is a fat land for the aviation development. However, most of the private airlines have tasted failure in the home market. Why?

High business costs make airlines’ wings clipped

Indochina Airlines, the first private air carrier in Vietnam, quietly left the market three years ago. Air Mekong may see its operation license to be revoked by the end of this month. Jetstar Pacific has been struggling hard to survive.

Lai Xuan Thanh, Head of the Civil Aviation Authority of Vietnam (CAAV) said on VTV’s “dialogues on policies” program that the private airlines failed because of their wrong decisions in business administration.

“An airline would not make profits if it has only one or two aircrafts,” he commented.

Due to the lack of capital, Indochina Airlines and Air Mekong flew with chartered aircrafts, while they had to pay high for using foreign services for aircraft maintenance, exploitation and business administration.

However, while pointing out that the 100 percent reliance on foreign services, which leads to the high business costs, was the main reason behind the failure, Thanh admitted that good services cannot be found from domestic sources.

“If airlines want highly qualified staff, they have to hire foreign workers,” he noted.

Luong Hoai Nam, former CEO of Jetstar Pacific, noted that a lot of air carriers in the world have also incurred loss, but they still keep operation, because they can call for the money from investors. Aviation is always a lucrative business field in the eyes of investors and they are willing to pour money into the sector.

Meanwhile, Vietnamese airlines find it difficult to call for investments because they cannot gain the investors’ confidence. This is because most of the airlines made wrong decisions when choosing their operation models (budget airlines or traditional airlines) and the types of aircrafts.

Lowering costs – it’s easier said than done

Experts have warned that the competition in the domestic market would get stiffer by 2015, when Vietnam has to open its sky to ASEAN countries. This means that by the time, the regional air carriers may make investments in Vietnam.

What domestic airlines need to do now is to cut down the business costs to become more competitive with the regional airlines.

The airfares set up by Vietnamese airlines, including Vietjet Air, which committed to provide flights at low costs, are still higher than in other regional countries.

Vietjet Air’s Deputy CEO Nguyen Duc Tam explained that the air carrier still has been heavily reliant on the partners.

“80 percent of the airfares are being controlled by the other service providers,” Tam said.

He has also blamed the high business costs on the current infrastructure conditions in Vietnam, which is not good enough for the air carriers to optimize their flight schedules to obtain the highest possible profits.

Meanwhile, Nam noted that Vietnam usually has to pay higher in the aircraft purchase contracts because it cannot buy in big lots. Besides, the fuel in Vietnam is more expensive than in Thailand and Malaysia, while Vietnamese airlines bear higher ground services and other charges.

VNE