What airlines need to speed up their recovery

The outlook for the aviation industry seemed bright in a forecast by the Civil Aviation Authority of Vietnam (CAAV) last month when it said that a full recovery of Vietnam’s air transport is expected by the end of the year.

CAAV forecast that 80 million passengers and 1.44 million tons of cargo will be transported this year, up 1% and 14.8% respectively from 2019 when Covid-19 had yet to hit Vietnam.

For airlines, however, the forecast seems too optimistic. Last year, Vietnam Airlines posted an accumulated loss of over VND34 trillion ($1.43 billion) while budget airline Vietjet recorded a more than VND2 trillion in loss.

Bamboo Airways and Vietravel Airlines are yet to turn a profit.

Luong Hoai Nam, a member of the Vietnam Tourism Advisory Board, said at a recent event that there is no rosy picture for domestic airlines this year.

“Carriers are deep in debt and are facing an operational crisis,” he said.

Now that demand is rising, aircraft leasing companies are seeking to get their jets back, Nam said, adding that if Vietnamese airlines are unable to pay for the lease the jets might be taken away.

Vietjet’s Deputy CEO Ho Ngoc Yen Phuong said that although some international airlines have become profitable again after the two-year hiatus, Vietnamese carriers are still facing many financial difficulties, and they might lose on their own playground if other carriers increase their presence.

Deputy CEO of Vietnam Airlines Trinh Ngoc Thanh said that the industry will not fully recover until the end of 2024, but he was not sure whether the national flag carrier can survive until than as its “financial health is very weak.”

Local airlines, therefore, are proposing several support policies to help them survive and speed up their recovery.

They want the domestic ticket price ceiling removed, saying that this policy is no longer in line with international norms.

The price ceiling has remain unchanged for eight years and this is unreasonable as expenses, including fuel, currency exchange rates and loan interests, have all increased.

Vietnam Airlines and Bamboo Airways proposed that while the ceiling is yet to be removed it should be raised to reflect the hike in operational costs.

Ticket agents are saying that domestic prices on some routes have nearly doubled year-on-year.

A VnExpress survey of 1,600 readers last month found that 51% of respondents want the price ceiling to remain unchanged.

Airlines are also requesting the government relax visa policies and create a national tourism promotion campaign.

“The Vietnam National Administration of Tourism partnered with airlines to promote tourism in other countries in previous years,” Thanh said. “But now there is no campaign and carriers do not have the budget to create their own.”

The Vietnam Airlines executive also said that the 15-day visa policy for European and American visitors should be doubled to 30-days.

Vietjet wants authorities to untie administrative knots so that Chinese tours can soon travel to Vietnam. Vietnam is yet to be included in the 20 countries that Chinese tourism firms are allowed to send tours to.

Even though China – which accounts for 30% of foreign tourists to Vietnam – has reopened, Vietnamese airlines still have to postpone plans to expand their flight frequency to this country.

Carriers are also seeking reductions in taxes and fees.

Thanh said that the 50% reductions in landing and takeoff fees of domestic airlines and an environmental tax on fuel, which were given during Covid-19, should be maintained to help ease the financial burden for carriers.

Bamboo Airways has proposed for these reductions to last until the end of 2024 or 2025.

Can Van Luc, chief economist at lender BIDV, said that it is unlikely that carriers will get out of losses this year and that they will still need a lot of government support in taxes and fees.