Vietnam airlines prepare for boom as roads fail

Vietnam airlines prepare for boom as roads fail

HANOI — Vietnam’s fledgling airline industry is poised for a boom as local competition heats up with fleet expansions, new routes and planned share offers that are set to make it one of the world’s three fastest growing markets.

50 MIN 8 SEC AGO

HANOI — Vietnam’s fledgling airline industry is poised for a boom as local competition heats up with fleet expansions, new routes and planned share offers that are set to make it one of the world’s three fastest growing markets. Even as the local economy chugs along at about 5 per cent growth, its slowest pace in 13 years, demand for domestic air travel is growing by double digits. That is translating into a surprisingly robust new source of business for Boeing, Airbus and regional aircraft makers such as Mitsubishi, Bombardier and Embraer.The International Air Transport Association expects Vietnam to become the world’s third-fastest growing market for international passengers and freight next year, and second-fastest for domestic passengers.

Vietnam’s Aviation Department expects 15 per cent growth in domestic passengers this year, more than double last year’s 7 per cent rise.

Though starting from a low base, Vietnam’s carriers will boost their fleets in the next few years, double or tripling them to serve a domestic market of 90 million people and tourist arrivals growing on average 20 per cent annually.

VietJet, Vietnam’s first private airline, agreed last month to a provisional order for up to 92 Airbus jets worth US$9 billion (S$11.2 billion) at list prices.

The low-cost carrier is aiming for a stock market listing in either Hong Kong or Singapore in 2015 to fund the expansion, which would start with flights to Tokyo, Beijing, Singapore, Kuala Lumpur and South Korea, then eventually, China, Russia and Australia and beyond, Managing Director Luu Duc Khanh said.

“Further it could be the United States, where 4 million people of Vietnamese origin live. They’re waiting for VietJet anxiously,” he told Reuters in an interview.

VietJet plans to double its fleet by 2015 to 20 jets, and is speeding up work to get three joint ventures in the air, including one with an undisclosed carrier in Myanmar and another agreed with Thailand’s KanAir, to operate early next year.

SHAKE-UP FOR STATE CARRIER

VietJet’s bold expansion after less than two years in business could raise the stakes not only at home but in Southeast Asia’s fast-growing low-cost market, dominated by Malaysia’s AirAsia and Indonesia’s Lion Air.

Those ambitious plans may have shaken state-run flag carrier Vietnam Airlines (VNA) into expediting its long-awaited initial public offering and fleet expansion.

VNA dominates the local market and will increase its fleet by 28 per cent to 101 aircraft by 2015. It has been preparing for an Initial Public Offering (IPO) in the second quarter of next year.

“The project is right on schedule,” said its spokesman, Mr Le Truong Giang.

Its fleet includes both Airbus and Boeing jets and it has ordered the Boeing 787 Dreamliner and the Airbus A350. According to Boeing, VNA has existing orders for eight 787s and 11 more through leasing companies.

The airline also has its hand in the low-cost market through a stake in JetStar, a joint venture with Australia’s Qantas Airways. JetStar plans to more than triple its fleet of five Airbus A320s to 16 in the next few years, a spokesman said.

The airlines and industry experts say the growth potential comes mainly from Vietnam’s topography and what Mr Khanh of VietJet called a “fortune location”.

Vietnam is 1,650km in length, its biggest cities and tourist resorts are far apart and it has poor road and rail infrastructure.

It is also within a few hours of Japan, South Korea, Hong Kong, Thailand and China and tourist arrivals are on the up, with 5.5 million in the first nine months of the year, a 10 per cent rise from the same period last year.

Mr Khanh said expansion would be gradual as the carrier takes delivery of five to 10 Airbus jets each year until 2022.

“It’s insufficient,” Mr Khanh said.

VietJet’s joint-venture plans were therefore a smart move, said Mr Timothy Ross, an air transport analyst at Credit Suisse in Singapore.

“I can’t imagine they have much on their balance sheet … so in terms of building a new business it’s far better to give away some of the potential upside and invest less,” he said.

JetStar had not been profitable and was likely to struggle as competition increased, Mr Ross said, while VNA had not done itself any favours delaying privatisation.

“We should have seen the Vietnam Airlines IPO three to five years ago, but it sat on its hands,” he said. “Competition in the airline industry is inevitable.” REUTERS

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: