Vietnam Airlines' new fleet supports growth strategy

Vietnam Airlines is getting stronger by the day, expanding its fleet and network as it looks to serve a hunger for air travel in the domestic market and a thirst for connectivity in the regional and global arenas.

Positive figures back up the notion of an “annus mirabilis” for the carrier in 2015. Its 127,500 flights represented a 3.5% increase over 2014. The load factor was also on the up – to more than 80% – with business-class travel improving 14% and premium-class travel rising by 40%.

The increase in traffic was handled effectively thanks to an impressive productivity surge. A 10% upturn in staff performance reflects the fact that the company achieved revenue gains without adding to staff numbers. Workers were more than compensated for their efforts, however, with salaries 28% higher on average. Organisational reshuffles, more efficient processes and a deepening connection between the airline and its employees all factored in to this promising result.

Externally, there is much to be buoyant about also. The Vietnamese population has now reached approximately 95 million while GDP growth is set to reach close to 7% in 2016. The economic performance – aided in no small part by Vietnam Airlines – will surely see a rise in the disposable income of the middle classes and feed back into airline growth in a virtuous circle.

The challenge for Vietnam Airlines is to maintain and even better these figures in 2016 and the years ahead. The target is to carry more than 19 million passengers this year, about 10% more than in 2015. The airline also wants to boost its financial standing, aiming to achieve consolidated revenue exceeding VND77.8 trillion ($3.5 billion), a consolidated profit before tax of VND2.3 trillion and a VND4.7 trillion contribution to the state budget.

To help realise these lofty goals, the airline’s strategy calls for new investors, following a business model change that allowed the airline to advertise its wares as a joint-stock company in April 2015. The latest company wooed by Vietnam’s sterling performance is ANA Group, Japan’s largest airline company. ANA has entered into a Memorandum of Understanding (MoU) with Vietnam Airlines to acquire an 8.8% shareholding, worth about $108 million.

The partnership aims to enable both airlines to take maximum advantage of the increasing demand for air services in Asia-Pacific and, in particular, in the emerging Cambodia-Laos-Myanmar-Vietnam group of countries, which has the potential to be among the fastest-growing air traffic markets in the region.

“Asia is a key growth market for ANA Group as we expand our international footprint and Vietnam Airlines makes the ideal partner for us because we share the same high standards and approach to customer service and efficiency,” said Shinya Katanozaka, CEO of ANA Holdings, at the announcement of the MoU.

From Vietnam Airlines’ point of view, the partnership with ANA Group will help it acquire new process management technologies, expand its market, improve service quality and increase competitiveness in the international market. As part of the deal, an ANA representative will sit on the board of Vietnam Airlines and ANA Group will also provide Vietnam Airlines with operational and management know-how to help support service quality.

Vietnam Airlines operates 66 flights weekly on 10 routes between Japan and Vietnam and there are plans to build on this following the ANA agreement. But Vietnam Airlines’ ambition does not stop there. While it already operates 95 routes to 21 domestic and 29 international destinations with more than 360 daily flights, the aim is to strengthen the airline’s competitiveness through enhanced global connectivity.

“To meet a predicted rise in travel demand, Vietnam Airlines has evaluated the feasibility of new operations to potential destinations in north-east and south-east Asia, and we have studied serving additional destinations in Europe and the US as well,” explains Trinh Ngoc Thanh, EVP at Vietnam Airlines.

The south-east Asia market remains especially robust, some six million passengers flying with Vietnam Airlines in 2015, a 15% hike on 2014. The growth trend is expected to continue in 2016 but Thanh warns that it is a highly competitive market with many regional competitors in the form of both traditional airlines and low-cost carriers. Carving out a niche will be difficult but not impossible with Vietnam’s strong tourism market and healthy domestic economy important elements in Vietnam Airlines’ offering.

Indeed, the domestic market is significant to future prosperity and the 20% growth rate in traffic figures in 2015 is likely to be replicated in 2016, assuming economic predictions are accurate.

Meanwhile, Vietnam is relatively wellconnected to China, an enormous market potentially, with the airline’s total traffic between the two countries reaching 1.1 million passengers in 2015, up 27%. The airline operates regular services to five main Chinese destinations – Beijing, Shanghai Pudong, Guangzhou, Chengdu and Hangzhou – as well as charter services to 18 destinations.

New aircraft will play their part in helping the airline to meet this booming demand efficiently. “Vietnam Airlines is the first airline in Asia to receive and operate the Boeing 787-9 and Airbus A350-900,” says Thanh. “This is an important development for Vietnam Airlines and will modernise the fleet and improve the quality of services. The new generation of aircraft provide a 20% fuel saving, lower maintenance cost per hour and a higher operational efficiency and will serve the expansion plan in long-haul routes in the long term.”

Eventually, the airline’s fleet – currently 87-strong – will benefit from 19 787s and 14 A350s. All aircraft will feature a new livery, part of a strategy to introduce a new corporate identity and brand image. Vietnam Airlines is also a member of the SkyTeam alliance, which Thanh acknowledges will be important to the airline’s route development plans in the future, particularly in international markets.

“Thanks to SkyTeam membership, the competitiveness of Vietnam Airlines has gradually been enhanced, the sale capacity and market share has been improved,” he adds.

Thanh points out, though, that Vietnam Airlines must continue to consider its own direct connections to new destinations in the future. Where that clashes with another SkyTeam member, it will require the airlines to negotiate to co-ordinate frequencies and schedules to meet market needs.

Many challenges remain, of course. While the years ahead may seem paved with gold for Vietnam, aviation infrastructure has to keep pace if the airline sector is to remain ahead of the curve. Tan Son Nhat Airport in Ho Chi Minh is a case point. The gateway is expected to be overloaded in the next few years and is out of alignment with the fleet development and traffic growth plans of Vietnam Airlines.

Thanh reports the carrier has reported the issue to relevant authorities, including the Civil Aviation Administration of Vietnam and the Airport Corporation of Vietnam and has asked them to search for an appropriate solution. Other airports throughout Vietnam are in need of some improvement if they are to support the development of the country’s air transport sector fully. A bright spot is Noi Bai International Airport in Hanoi, which has recently welcomed a new terminal and typifies the forward momentum Vietnam is experiencing.

All in all, Vietnam Airlines has much to look forward to in the short and medium term. It is performing above expectations and attracting new investors. With oil prices falling, a populous and increasingly affluent country as its base and regional demand for air traffic backing up its home base, the sky really is the limit.

“With a product and service upgrade to international standard, a new corporate identity strategy and the introduction of new generation A350/787 aircraft, Vietnam Airlines is becoming one of the leading airlines in Asia, ‘reaching further’ in the aviation industry as well as enabling the country to comprehensively participate in the global economy,” says Thanh.

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