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Aviation transport: Everyone loses
In the face of the fuel price crisis, airlines must make dramatic changes to survive.
Will private airlines die young?
Sometime ago many companies noisily asked for the government’s permission to establish private airlines. But now the situation is quite different, with the first private airline announcing it will delay its first flight.
The first private airline of Vietnam, Vietjet Air (VJA), received a business licence in late December 2007. This was a great event at the time and the public hoped that the presence of this airline would help diversify and enhance competitiveness in the local aviation market.
A short time later, the second private airline, Air Speed up, was licenced. Mekong Air and some other individuals also submitted applications to the Vietnam Civil Aviation Administration to ask for permission to set up private airlines or ask for the agency’s consultancy.
However, neither of the two first private airlines of Vietnam has become operational. Recently, VJA even stated it will delay inauguration of its first flight from December 2008 to 2009. VJA has also fired its foreign Chief Executive Manager and many employees.
“Highly rising fuel price is a hindrance for VJA. We are working on a new business plan,” said VJA General Director Nguyen Duc Tam.
According to the Vietnam Civil Aviation Administration’s regulations, two years after an airline receives a licence, if the airline hasn’t conducted a flight its licence will be revoked. VJA still has over one year to conduct its first flight.
Some experts say it is lucky for VJA that it is not flying yet. According to Luong Hoai Nam, General Director of Jetstar Pacific, doing aviation business at this moment is like throwing money out the window.
The second private airline, Air Speed Up, is trying to change its name.
If the fuel price crisis prolongs, the future of private airlines in Vietnam will be so dim that they may “die young”.
Everyone loses
Meanwhile, not only newly-established private airlines are facing difficulties.
Last year many foreign airways asked for permission to open air routes to Vietnam, for example Nok Air (Thailand), Hong Kong Airlines, Lion Air (Indonesia), Cebu Pacific (Philippines). But some of them have closed their routes to Vietnam. Nok Air put an end to the Bangkok-Hanoi air route while Cebu Pacific closed the Manila-Hanoi route.
Chief of the Aviation Transport Department of the Vietnam Civil Aviation Administration Vo Huy Cuong said small airlines of Taiwan like Evar Air, China Airlines, Unie Air, Manderin Air plan to reduce the number of their flights to Vietnam.
Vietnam Airlines, the national air carrier, has had to cut 10-20% of its permanent spending. “Vietnam Airlines’ future policy is making alliance with a foreign airway,” said an official of Vietnam Airlines.
This airlines reported pre-tax losses for the first half of 2008 of VND83 billion (over $5.18 million). This is the total loss of Vietnam Airlines Cooperation, in which there are tens of subsidiaries which don’t offer flights.
Jetstar Pacific, which has a much smaller scale than Vietnam Airlines, said it suffered similar losses. As a low-cost airline, Jetstar Pacific has already cut spending, so to reduce losses this firm must reduce air routes and numbers of flights. It has given up the HCM City-Hue, Hanoi-Hue air routes and didn’t initiate HCM City-Da lat, HCM City-Buon Ma Thuot and HCM City-Cam Ranh routes. In general, it has cut up to 30% of its annual plan. Nam said the firm would have to postpone its plan to increase its fleet to 14 aircrafts by this year’s end and to 30 in 2009.
Geoff Dixon, Chief Executive Manager of Qantas Airlines, said last month that this is the largest crisis in the world aviation industry. Around 20 airlines worldwide have gone bankrupt this year.
Many big Asian airlines have announced losses, including Thai Airways and Cathay Pacific. Others like Qantas, Japan Airlines, All Nippon Airways, etc. are considering closing some air routes and reducing the number of staffs. Even Singapore Airlines, the world’s second-largest airway, has also seen a profit reduction of 15%.
Some airlines are thinking of merging and making alliances as a solution, like the case of KLM and AIR France; Delta Airlines and Northwest Airlines’ American Airlines; British Airways and Iberia Airlines.
The oil price has fallen recently but experts still warn that the crisis of the aviation industry is a reality and airlines must change to survive.
Government’s help
The Vietnam Civil Aviation Administration seemed to be very cautious when it proposed the government set a limit on licencing new airlines, with only 2-3 new airlines licenced till 2010.
The agency’s cautiousness is practical, which may be learnt from Indonesia, which licenced up to 36 airlines in a short period of time, most of which were private ones. In 2007, some accidents occurred with aircrafts of Adam Air and Garuda, killing hundreds of people. The European Union has named some Indonesian airlines on its blacklist. This situation resulted from the loose control of Indonesian management agencies.
Besides issuing policies to facilitate the development of Vietnam’s aviation industry, the government allowed airlines to raise the ceiling air fares for local routes, and reduced the import tax rate on aircraft fuel from 15% to 5% and 0% at present.
When fuel prices highly increase in the international market, the Finance Ministry permits airlines to collect fuel surcharges on local routes.
VNN
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