Challenges and opportunities for launch of new air routes to US

Wednesday, 2019-08-07 13:48:25
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Bamboo Airways is making preparations for the opening of the direct air route to the US.
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NDO – After the US Federal Aviation Administration (FAA) granted a certificate of Category 1 aviation safety rating (CAT1) for Vietnam’s Civil Aviation Authority (CAA) in February, many domestic airlines intended to open direct routes to the US.

However, this is not a profitable route and the airlines will have to face huge financial risks in covering losses for the first phase of exploitation.

Completing legal procedures

According to many experts, Category 1 not only is a prerequisite for Vietnamese airlines to launch direct flights to the US but also has contributed to improving the prestige of the Vietnamese aviation sector and showing that the human capacity, apparatus and legal documents on aviation of the country comply with the rules of the International Civil Aviation Organisation (ICAO). CAT1 allows all domestic air carriers to apply for fly directly to the US.

It takes around 15-17 hours to fly directly between Vietnam and the US, so the airlines should buy more modern aircrafts. It is also crucial to reduce the load of goods or the number of passengers for the current types of wide-range aircrafts such as Boeing 787-9 Dreamliner and Airbus 350-900 XWB for direct flights.

There are now many big international airlines operating one-stop routes to the US, so it is difficult for Vietnamese carriers to fly one stop to this country. The launch of direct air routes to America will be an opportunity for the domestic airlines.

According to Deputy Director of the Vietnam’s CAA Vo Huy Cuong, Vietnam and the US are members of the ICAO. In the early 90s of the last century, Vietnam developed policies to gradually liberalise air transport with America and an Air Transport Liberalisation Agreement between the two countries was signed in March 2003. In 2010, the Vietnamese CAA reviewed and evaluated the agreement, showing that there were no restrictions on passengers and flight frequency and no obstacles and problems for the permission of opening routes connecting the two nations. The CAA’s leader said that the aviation market between Vietnam and the US has great potential, with around 700,000 passengers per year. The direct route to the US will create a great opportunity for Vietnam to develop its aviation market.

In terms of airplanes, the airlines wanting to fly non-stop to the US will face certain difficulties because they have to select rational aircrafts and meet requirements related to the capacity to monitor flight safety.

Currently, Bamboo Airways is studying and promoting the launch of a direct air route from Vietnam to the US. The opening will not only bring commercial benefits but also demonstrate its capacity and the entire aviation industry, while highlighting the comprehensive relations between the two countries. “Along with efforts of the domestic airlines, we have a strong belief that the Vietnam – US direct air route will be opened and operated in the near future. The CAA has appreciated Bamboo Airways’ efforts in this regard”, noted the Deputy Director Vo Huy Cuong.

General Director of Bamboo Airways Trinh Van Quyet confidently said that with the number of over 700,000 passengers travelling between the two countries per year and the average growth rate of over 8% per year in Vietnam-US aviation market, there will definitely be customers. According to calculations, the total cost for direct flights to the US will be around VND113.6 billion (nearly US$4.9 million) per month. With a price of US$1,100 for a return ticket, the airline will earn VND98.9 billion per month, about a VND14 billion (US$602,147) loss, if it uses Boeing 787-9 airplanes (240 seats), while it would earn VND120.4 billion (nearly US$5.2 million), meaning VND6.8 billion (US$242,471) in profit, if operating Airbus A350 aircrafts (280 seats). Notably, the carrier would make a profit of around VND28 billion (over US$1.2 million) through increasing the return ticket fares to US$1,300.

Immediate risks

It takes at least 1-2 years for Vietnamese airlines to meet all the conditions for the launching of this air route. Many experts have expressed concern about the financial difficulties in the opening of direct flights to the US. In fact, during the 2004-2007 period, two American carriers, Delta and United Airlines, opened direct routes to Vietnam, but then they had to give up due to losses.

Financial problems showed that the US is not a potential market for profits. If the opening of routes to this country aims to promote the tourism, investment, trade and integration as well as create conditions for people’s travel demand, this should be considered as an investment that requires a capable airline. It is estimated that it could take the carrier 5-10 years to reach the break-even point with this route. There could be losses of around US$30-50 million for the first five years, which is the great pressure that airlines need to solve in planning to fly directly to the US.

Former Deputy Minister of Foreign Affairs Le Cong Phung, who is also former Vietnamese Ambassador to the US, said that the direct air route to the US will meet the demand of Overseas Vietnamese in America. However, he was concerned about economic efficiency as domestic airlines have suffered losses from the operation of long routes to France, Germany and Britain. According to Deputy General Director of Bamboo Airways Truong Phuong Thanh, since its formation, the carrier has been very interested in opening the route. “We hope that Bamboo Airways will be the first airline in Vietnam to launch a non-stop route to the US. The Government is strongly encouraging the opening of the sky for aviation development, and Bamboo Airways is confident that it can fulfill this goal”, he shared. Immediately after its first flight in January 2019, the airline began preparations for the route with many challenges, such as the signing of an agreement to order wide-body aircrafts from Boeing Company, development of human resources, pilot training, and thorough investigation of requirements on safety, security, legal conditions and laws of the US.

General Director of Bamboo Airways Trinh Van Quyet affirmed that the company has calculated carefully all risks, including the inability to fill the seats, and the reduction of flight frequency is one of the most reasonable solutions. In the first phase, Bamboo Airways will sell low-cost tickets for promotion and later when the market is more stable, the tickets’ prices can be raised to ensure flight safety and punctuality as well as the professionalism of pilots and flight attendants. However, the ticket fares are surely much lower than the tickets of foreign airlines such as Japan Airlines (US$1,600) and Cathay Pacific (US$1,300). The carrier will set a flexible business plan to achieve efficiency. Accordingly, it will operate flights in a week instead of 17 days.

Chairman of Vietnam Chamber of Commerce and Industry Vu Tien Loc expressed his belief that the opening of air routes to the US shows the courage to meet the wishes of Vietnamese people. However, the airline should carefully calculate both challenges and opportunities. In the first years, the direct flights can generate losses, but with the long-term and overall plan of FLC Group, the route is expected to bring about successes. In addition to the development of trade relations between the two countries, the number of about 30,000 Vietnamese students travelling to the US and millions of overseas Vietnamese frequenting between the two countries each year are great potentials for the route’s operation.