VietNamNet Bridge – Vietnamese budget airlines have been making every effort to mobilize more capital and expand their fleets in their plans to provide international flights.

Ambitions

“To prove Vietjet Air as an international airline, the only way we have to follow is to compete fairly with foreign airlines. We have to move ahead, or we will never grow up,” said Luu Quoc Khanh, Vietjet Air’s Managing Director.

Vietjet Air has been doing the things that its processors--Indochina Airlines and Air Mekong could not. Making its debut just two years ago, Vietjet Air has nearly covered all the domestic air routes, while having raised its domestic market share to 25 percent, becoming a redoubtable rival to Jetstar Pacific and the national flag air carrier Vietnam Airlines.

Vietjet Air, which now has the stockholder equity of VND800 billion, understands that it needs huge capital to fly internationally. In the future, when it has 20-30 A320s for its fleet, it will have to raise the stockholder equity to VND1 trillion at least, as stipulated by the Civil Aviation Authority of Vietnam (CAAV).

The budget airline is making hectic preparations for its IPO in Hong Kong or Singapore, slated for 2015. Khanh said Vietjet Air expects the IPO share prices would be 4-10 times higher than the face value.

Jetstar Pacific has also revealed its plan to fly internationally. Its fleet, comprising of six A320s, would have two more in just a couple of weeks to serve the Tet business plan and the international flight plan.

“The first international air route Jetstar Pacific plans to open this year is HCM City – Singapore - Jakarta. The next destinations could be China or Hong Kong,” said Jetstar Pacific’s CEO Le Hong Ha.

Warnings

Experts, when asked to make comments about the ambitious plans by the Vietnamese budget airlines, said “it’s easier said than done.”

Jetstar Pacific, for example, once stated that the first international flight would be provided in 2013. However, this has not been done so far.

The experts have also warned that international air routes would be “tougher” than domestic ones, and that even the airlines succeeding in the domestic market would also meet difficulties when flying internationally.

The penetration rate of budget airline in Vietnam is at 23 percent, equal to Myanmar. Meanwhile, the rates are higher, at 50 percent, in Malaysia and the Philippines, and 31 percent in Thailand and Singapore, according to CAPA.

In order to exploit the South East Asian markets, Vietjet Air would have to compete with the other 11 budget airlines, including the well-known names AirAsia, Lion Air, Cebu Pacific Air, Tiger Airways, Nok Air, Scoot…

A stiffer competition is expected of Vietnamese budget airlines in Northeast Asia, where there are 17 budget airlines already.

In order to reach out to far markets like South Korea and Japan, the flights from HCM City would take five hours and more. If so, airlines would have to use big aircraft such as A330 or A350. This means that it would have to spend money to buy or charter more aircrafts.

The failure of Japan AirAsia could be a big lesson for both Vietjet Air and Jetstar Pacific. According to CAPA, Japan AirAsia took a loss of $31 million in 2012 and $21 million in the first quarter of 2013.

NCDT