VietJet cabin crew members inside an A320 airplane at Hanoi’s Noi Bai airport. Reuters |
Vietnam’s ‘bikini airline’ put to the test
Reuters / Khmer Times | 16 January 2017
HO
CHI MINH CITY (Reuters) – VietJet Air has gone from start-up to
Vietnam’s largest private airline in five years. Now it is pushing
overseas to keep up that growth and absorb a bumper order of more than
200 planes – no easy task in a cutthroat Asean market.
The
airline, which was set up in 2011, grabbed headlines with its
bikini-clad flight attendants. It tapped a rich vein – a fast-growing
economy and a young population that was starting to travel more.
But
VietJet’s next step will be more challenging, industry analysts and
executives say, as it expands further beyond Vietnam into choked Asean,
competitive China or Russia, where VietJet’s fleet of narrow body jets
would confine it to the country’s east.
Infrastructure
in the region is clogged and new airport slots are rare. Even Kuala
Lumpur, a less crowded airport, is highly competitive, thanks to
airlines like Air Asia.
That has raised questions about VietJet’s ability to absorb one of the region’s largest aircraft orders.
“[VietJet]
have been extremely successful in the first five years but what they
have done has been entirely domestic,” said Singapore-based analyst
Brendan Sobie at consultancy CAPA.
“The
domestic market will start to slow and it is more difficult to expand
internationally – some people doubt that they can continue [growing] at
the current rate.”
According
to CAPA, Vietnam’s domestic aviation market grew 30 percent in 2016 to
28 million passengers – nearly five times the growth rate of the broader
economy.
At
VietJet’s gleaming offices in Ho Chi Minh City, its chief executive and
founder, Nguyen Thi Phuong Thao – also Vietnam’s first female
billionaire – outlines plans to push into China, Australia and Russia,
where she studied and first worked.
She
dismisses concerns of excess competition, even in China, where local
airlines have boomed. More than 10 Chinese carriers have begun flying
since the aviation regulator relaxed a six-year suspension on new
airline licenses in 2013.
“Other countries are still doing business with China and VietJet also has its own advantages,” she told Reuters.
“We can ally with Chinese airlines when wanting to expand in the country’s local market.”
Unlike
other new generation carriers in the region who have sought to set up
alliances to gain clout without merging, VietJet has resisted.
Among
the airline’s most imminent concerns will be its large aircraft order –
more than 200 planes, including more than 100 Airbus A320 family
aircraft and 100 Boeing 737 Max 200s – a mixed approach rarely taken by
low-cost or new generation airlines, who prefer to streamline
engineering needs.
The
Boeing order in particular, announced during a visit by US President
Barack Obama, prompted questions over whether the order was placed for
political reasons. Ms. Thao dismissed this.
Industry sources, however, say some of the 200 planes on order may be subject to reconfirmation or other get-out clauses.
Ms.
Thao says the airline has support to finance its orders, worth over $20
billion, but has given no detail. The group has five trillion dong
($221 million) in debt.
A
Boeing spokesman said it had no change to its order. Airbus, which
analysts say is most exposed to budget airlines in Southeast Asia
including VietJet, declined to comment.
VietJet ended 2016 with some 40 aircraft but is targeting more than 200 by 2023.
And
it is not without growth potential. Asia Pacific passenger growth is
the fastest in the world. The carrier's pre-tax profit almost doubled
last year to over $100 million and it sees its bottom line rising by
almost a third this year, thanks to a low cost base.
An initial public offering to raise $170 million valued VietJet at $1.2 billion. Shares start trading in February.
“So far, so good,” said analyst Shukor Yusof of Endau Analytics, describing growth so far as “a feat.”
“But I’m a bit skeptical if this rapid growth can be sustained without affecting the airline’s bottom line.”
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