Feb 15, 2013

Vietnam - Air carriers fighting over domestic market share

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VietNamNet Bridge – Airlines have been trying every possible means to scramble for the market share. However, analysts comment that the competition in the domestic aviation market is not stiffer than ever.


In 2012, Vietnam Airlines, for the first time, could not obtain the targeted growth rate in the domestic market after many years of strong development.

The market demand has decreased in the context of the economic recession. Meanwhile, two more private airlines have joined the market. This means that airlines have to compete more fiercely to scramble for pieces of the market cake.

Vietnam Airlines, the national flag air carrier has recently asked the Ministry of Transport to apply a policy to allocate transportation loads to air carriers so as to avoid unhealthy competitions and the waste of the airlines’ resources.

The air carrier’s proposal has been made after it lost a considerable big market share on some key air routes, including the Hanoi – Da Nang/HCM City, Da Nang – HCM City/Hanoi and the tourism air route to Nha Trang City.

These have become the most competitive air routes after Air Mekong and Vietjet Air jumped into the bandwagon. The new comers have entered the stable exploitation period, considering expanding the fleet in order to increase the flight frequency.

Vietnam Airlines said that previously, it always held 80 percent of the domestic market share, while the proportion has dropped to 50 percent and may decrease further when private airlines plan heavier investments in their fleets.

By the end of 2012, airlines had carried 12.2 million domestic passengers, 122,000 tons of cargos, an increase of 1.8 percent in the number of passengers and decrease of five percent in cargos in comparison with the last year.

The figures were quite different from that in the years before, when the domestic aviation market always saw the high growth rates of 10-20 percent. The market scale remains unchanged, while the number of service providers is getting higher, which means the narrowed market shares for airlines.

Vietjet Air, which understands that it is a new comer and has been at a disadvantage, decided to provide services at low fees like a budget airline. It’s obvious that with the model, the airline tries to persuade the passengers who now travel by land and railway to shift to fly with Vietjet Air.

The air carrier also sells air tickets through the banking system in an effort to increase the revenue. The lowest airfare offered by Vietjet Air is just VND500,000, a very attractive level to passengers.

However, the low airfare has not pleased other airlines. Experts also think that Vietjet Air now sells tickets at the prices lower than the production costs, believing that the lowest possible airfare airlines can apply while not violating the competition law is VND600,000.

In response to the low-airfare policy applied by Vietjet Air, Vietnam Airlines has offered the high discount rates for booking agents which can increase the sales of the flights on the air routes being exploited by Vietjet Air as well. Besides, it has also continuously launched sales promotion campaigns to lure popular passengers.

Only healthy competition is good to the market

Head of the Civil Aviation Authority of Vietnam (CAAV)--Lai Xuan Thanh, said that one of the goals set up by the State when it keeps the market door open to private airlines is to create a healthy competition in the market, which would benefit passengers.
Thanh has admitted that airlines have been trying to slash the airfares, creating an unhealthy competition among domestic airlines.

The development of private airlines, according to Thanh, would bring a positive impact that it would ease the monopoly of Vietnam Airlines. However, some problems would also arise.

Vietjet Air, for example, plans to have seven more aircraft in 2013. If so, this may lead to the oversupply, thus badly affecting the operation of the programmed fleets, and causing the waste of the society’s investments.


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