AIRLINES IN VIETNAM

HEADLINES

 Airlines total value sales grow by 11% to reach VND143 trillion in 2018  Low-cost carriers outperform scheduled airlines, mainly thanks to the success of local player

Vietjet Air

 Over the forecast period airlines will record a 6% CAGR at 2018 constant prices to reach VND187 trillion in 2023

PROSPECTS

- Low-cost Carriers Continue Gaining Share From Scheduled Airlines

The low-cost carriers category continues to be boosted by the success of local player Vietjet Air. The airline has regular promotion programmes to attract people to fly instead of taking other transportation modes. It also taps into the growing demand for travelling among young people, who do not have very high budgets but still want to travel a few times a year. With its no-frills, low-price strategy, the airline reportedly became the leading airline on domestic routes in 2017 in terms of number of passengers.

Strong development is also happening in the international market. In 2017 and 2018, Vietjet Air launched many new routes, many of which were to new destinations that did not have any direct flights before, such as Ho Chi Minh City – Chiang Mai, and Ho Chi Minh City – Phuket. At the same time, the entrance of new international low-cost carriers, such as Lanmei Airlines, and the existence of many players that fly to Vietnam, such as Nok Air, Scoot and Jetstar Asia, provides great choice for local budget travellers for outbound travel.

Over the forecast period, low-cost carriers are expected to continue taking share from scheduled airlines. Growth will be boosted by rising demand from both leisure and business travellers. For many young travellers, the comfort of scheduled airlines can be sacrificed to save their budget for other parts of the trip. Tapping into this opportunity, industry players also plan to launch new routes. For example, Vietjet Air has announced plans to open direct flights on the routes Ho Chi Minh City – New Delhi and Ho Chi Minh City – Brisbane in 2019.

Poor Infrastructure Hinders Growth in the Air Industry

Poor airport infrastructure has been a threat to the growth of the air industry in Vietnam for many years. For example, Tan Son Nhat International Airport – the busiest in the country – was designed to handle 25 million passengers, but has accommodated a much higher number of passengers in the last three years. Overcrowded airports have led to frequent flight delays, deteriorating runways, and reduced opportunities for industry players to open new routes. Other factors, such as traffic jams on the roads leading to the airport, have also worsened the customer experience.

Despite continuous pressure from industry players, the government has been slow in developing the air travel infrastructure. Long Thanh International Airport, which is supposed to replace Tan Son Nhat International Airport, is expected to start operations only by 2025. As of 2018, the expansion plan for Tan Son Nhat International Airport had still not been approved by the authorities.

The overcrowding situation at Tan Son Nhat International Airport is not expected to be completely solved in the near future. This will be one of the main hindering factors for the air travel industry, as Tan Son Nhat International Airport is the busiest in the country.

- Vietjet Air Is Expected To Retain the Leading Position

Vietjet Air has grown strongly over the years. In 2017, it reportedly overtook the national flag carrier Vietnam Airlines to become the largest airline on domestic routes, in terms of number of passengers. Its success can be attributed to its constant efforts to reduce prices, in order to make flying more affordable to more customers, and its youthful and dynamic brand image. Despite regular negative reviews for its services and delayed flights, Vietjet Air has still recorded substantial growth, thanks partly to new route launches and a constantly growing fleet.

Over the forecast period, Vietnam’s air market is expected to see more and more players. A new local brand, Bamboo Airlines, is expected to launch its first flight by the end of 2018. New international airlines will also join this fast-growing market. For example, Swiss-based Edelweiss has announced plans to launch a direct service between Ho Chi Minh City and Zurich by the end of 2018. In response to the rising competition, Vietjet Air has announced plans to open new routes, including Ho Chi Minh City – New Delhi and Ho Chi Minh City – Brisbane, by 2019. In early 2018, the player also signed a contract to lease and purchase new airplanes, including the modern A321neo, which will strengthen its fleet over the forecast period.