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Jetstar Pacific touches down in market
As Vietnam’s second biggest air carrier last week formally turns into a multi-national company following the Australia-based Qantas Airways’ acquisition of Pacific Airlines, Luong Hoai Nam, chief executive officer of the newly launched Jetstar Pacific Airlines Joint Stock Aviation Company, talks about how the deal opens a new sky for the local aviation market.
Qantas’ purchase agreement with the State Capital Investment Corporation (SCIC) to hold a 30 per cent stake in Pacific Airlines was a headline-grabbing merger and acquisition (M&A) deal in April last year. Could you give us more details?
I cannot say much about this because most of the terms and conditions are of commercially confidential nature. Our shareholders have disclosed that Qantas agreed to pay $50 million for a 30 per cent stake in Pacific Airlines. The first acquisition of 18 per cent of Pacific Airlines’ shares was made on July 31 last year and further investments will be made in 2009 and 2010 as the company grows.
How will the Vietnamese carrier be restructured following the deal?
Jetstar Pacific is being completely re-structured in terms of ownership, corporate governance, business modeling, strategy, standards and, of course, its brand image. The agreement between SCIC and Qantas has created a much stronger financial base to support Pacific Airlines’ development to become a major airline in Vietnam and in the region with Qantas’ capital, internationally established networks, airline safety and operational expertise, low-cost airline business know-how and certainly the world-wide known Jetstar brand. By 2014, we expect to have a fleet of 30 Airbus A320 aircraft.
What are the benefits for Qantas?
Qantas’ investment in Pacific Airlines is strategically in line with the well-known dual brand strategy, namely Qantas and Jetstar and pan-Asia expansion. Investing in an 85 million person market is attractive for any global investors.
And Pacific Airlines?
We do welcome foreign expertise. We have our own airline expertise, but such is not enough to make a big airline of international standard. Decision-making freedom could be worthless or even destroying if you wouldn’t acquire know-how and skills to do right things and get things right. Especially, the airline business has many things to deal with safety and our responsibility towards thousands and millions of people who use our service. As a CEO, I would give up some decision-making freedom in exchange for better decisions.
Now with Qantas’ backing, when do you think Jetstar Pacific can overrun the national flag carrier Vietnam Airlines to become the local market leader?
We have no specified time limit for our growth and competitive position. We will grow as much as the market can support and we can still make pretty profits. Jetstar Pacific is a commercial, business-minded carrier. We will never refuse passengers as far as they love our services and their travels contribute to our profitability. We will not fly where we foresee no profits.
Given the inflating fuel costs, how can you always make the carrier profitable?
I can say this is not a good time for air carriers like us when oil makes up 60 per cent of our operating costs, a big jump from the traditional level of 22-23 per cent. At Jetstar Pacific, now we have a joke that we are a petroleum company trading oil for cheap air tickets. At these fuel prices, we are not making profits, frankly. Not an easy situation. If we charge passengers more for the fares, they will travel less frequently. Then market growth will slow down.
Fortunately, the government has given us a helping hand by slashing fuel import taxes from 15 to 5 per cent.
At Jetstar Pacific, we are also reviewing our network and making some adjustments, and implementing numerous cost cutting initiatives to somehow offset fuel price increases. We will continue to do what ever we can to save costs, fare increase will only be our last choice.
What can you predict the market conditions for air carriers this year, particularly considering the tougher competition in the aviation sector when some new carriers like VietJetAir are to commence operations?
We expect 2008 will be not a good year for Vietnam’s air travel market.
In 2007, domestic market growth was at 28 per cent year-on-year, but it was only 1 per cent in the first quarter of this year. Looking at other countries we can see some airlines have been closed down in Indonesia, Hong Kong and the United States. But, I believe we are strong enough to stay in business through the current economic turbulence in the world and Vietnam in particular.
VNN
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