Hanoi-based Vietnam Airlines is eyeing a significant fleet expansion. The prospect was raised by the airline’s CEO, Duong Tri Thanh, last week. This comes despite Vietnam Airlines reeling from the impact of COVID-19 and grounding 100 of its 103 aircraft. But Duong Tri Thanh sees opportunities in the midst of an aviation storm.
Moving forward amid heavy financial losses
Vietnam is one of the fastest-growing aviation markets in the world and boasts some of the world’s busiest domestic airline routes. But this year, Vietnam’s Civil Aviation Authority expects local airlines to lose hundreds of millions of dollars. Vietnam Airlines is forewarning a loss of $843 million in 2020. In the first quarter of 2020, the airline lost $110 million.
Duong Tri Thanh thinks it will take up to five years for the aviation business to return to normal in Vietnam. You might think now would be a good time for Vietnam Airlines to cut its losses and reduce expenses. But the airline’s CEO plans to do the opposite.
Rather, Duong Tri Thanh says now is a good time to buy aircraft. He wants Vietnam Airlines to be in the box position to seize opportunities when normal operations resume. According to a report in VietnamNet, the CEO proposes buying 50 more aircraft at a cost of approximately $3.8 billion to help achieve this.
That’s about a 50% increase on the current fleet size of 103 aircraft. The airline boss argues that normal wait times for new aircraft have been dramatically slashed as other airlines cancel orders. Further, with demand for new planes so low, the big aircraft manufacturers should offer deep discounts to potential new buyers like Vietnam Airlines.
Growth in Vietnam’s aviation sector halted
Government-owned Vietnam Airlines has been under threat by more nimble and aggressive emerging competitors well before COVID-19 struck. Vietnam’s aviation sector has thrived in the last decade with year on year double-digit growth. In addition to Vietnam Airlines, Jetstar Pacific, Vietjet Air, Vietnam Air Services Company (VASCO), and Bamboo Airways are all scooting around the country. But the brakes have been slammed down hard on Vietnam’s booming aviation sector this year.
With the sector expected to be awash in a sea of red ink for years to come, Vietnam’s Government has stopped the approval process for new airlines. Three new airlines were waiting in the wings. That will give Vietnam Airlines some breathing space in the immediate future. After suspending flights, domestic flying in Vietnam resumed in mid-May, with services gradually ramping up.
Radical decisions to help lock-in Vietnam Airlines’ future
The pro-growth stance taken by Duong Tri Thanh might run counter to conventional wisdom, but he cannot afford to be complacent in a space filled with market hungry newcomers. That space will get even more crowded when the Vietnamese Government lifts its temporary ban on processing new operating permits.
Local upstart competitors like Bamboo Airways have problems of its own. But Bamboo Airways is resolutely pushing ahead with its plans to have 40 aircraft by the end of 2020 and a 30% market share in Vietnam.
Competitors like Bamboo Airways mean Vietnam Airlines cannot afford to be complacent. They’ll leap at gaps in the market the big government-owned carrier is slow to or cannot fill. Powering his airline’s own growth and keeping the lid on competitors like Bamboo Airways are just two reasons why Vietnam Airlines’ Duong Tri Thanh might think now is a good time to buy new planes.