Plan failure
According to the International Air Transport Association, as the world’s seventh fastest-growing air travel market during the 2013-2017 period, Vietnam saw a remarkable growth rate of 17% in 2017, more than double Asia’s average growth rate of 6.7%.
It has been projected that Vietnam will soon be among the world’s top five markets with strongest passenger growth. Such huge potential is an opportunity for Vietnam’s aviation industry to continue taking off but is also a considerable challenge, said Deputy Transport Minister Le Dinh Tho on the dramatic growth of the domestic airline industry in recent years.
Dr Tran Du Lich, an economic advisor to the Prime Minister said the advent of budget carriers has made air travel in Vietnam more affordable and is also one of the reasons why the industry’s growth has far exceeded all forecasts, noting that the growth of low-cost airlines seems to be tearing down the entire development plan for airports, especially Tan Son Nhat which serves Vietnam’s southern economic hub of Ho Chi Minh City.
He emphasised that budget carriers must be managed under a national policy and should not be allowed to grow out of control.
“I support low-cost airlines but regulations, state management, and infrastructure investment concerning them must come under a consistent policy with a long-term vision in order to create an environment for fair competition. We cannot allow things to happen and then deal with them consequentially,” Lich said.
According to Professor Tran Tho Dat, President of the National Economics University, the unchecked growth of budget airlines could lead to a market of intense competition where carriers race to lower their ticket fares and increase flight numbers to capture the market, which could end up causing losses or even mutual annihilation.
He cited an event that occurred a few years ago when three European airlines, Air Berlin, Alitalia, and Monarch, went bankrupt one after another in just 50 days, as a result of a fare war, as a prime example.
In India, its economy was also once hard hit by fierce competition in the aviation industry.
Professor Dat suggested that the government should set the requirements on capacity and operation for airlines and make accurate market forecasts in order to come up with reasonable plans.
Sustainable growth
General Director Duong Tri Thanh of the national flag carrier Vietnam Airlines warned that the new business model for low-cost airlines is booming around the world, especially since 2015 when oil prices bottomed out.
Since the aviation industry is very fragile and vulnerable to market volatilities, notably recovering oil prices, Vietnam Airlines has taken a cautious approach in its development plan so as to ensure it could meet its long-term goals.
Deputy Minister Tho said that the growth of budget airlines is first and foremost is to meet the people’s travel demands. Secondly, it makes long-distance travel more convenient, given Vietnam’s geographical conditions. But a legal framework is still needed to guarantee sustainable and long-term development, Tho said, adding that the aviation industry should have stringent requirements with safety and security being the primary concern.
For now the Law on Civil Aviation has been enacted to create the legal framework for the sector’s development and in the time ahead, the Transport Ministry will continue to make revisions to make it more relevant.
Dr Tran Dinh Thien, Director of the Vietnam Economics Institute, said that the Ministry of Transport should learn from the lessons of Grab and Uber when managing the aviation industry.
In the competition between airlines, the ministry should attach importance to the health of the flag carrier because a small mistake in management that rewards one airline to the detriment of another could warp the market.
In addition, signs of unfair competition have emerged, although few companies have participated in Vietnam’s aviation market. Therefore, the airlines themselves should be mindful of their business model so as not to weaken themselves and cripple their international competitiveness.
Airlines should also work together for mutual growth, no matter whether they are privately or state-held because they are all Vietnamese carriers.
