Vietnam Airlines plans to launch a new long haul route to Los Angeles (LAX), the first nonstop between the US and Vietnam. With US tourism to Vietnam up nearly 12% and a booming aviation sector in the country, flag carrier Vietnam Airlines is keen to beat rival Bamboo Airways to the US market. The new route will come with a hefty $54M USD loss initially, according to the carrier’s application.
Vietnam Airlines anticipates losing millions on its first US route
In its March 2019 application to the US Department of Transportation (DOT), Vietnam Airlines included estimated traffic and financial results for the first full year of operations on its proposed Los Angeles (LAX) route. Despite projecting a $54M USD loss, Vietnam Airlines reiterated its support for the market, stating:
While Vietnam Airlines anticipates that the SGN-LAX route may produce a loss during [its] initial year, VNA is prepared to invest in the route to fulfill its long-term route network goalsAdvertisement:
Vietnam Airlines projects a total passenger count of roughly 136,000 people in its first year of operations and an estimated $143M in operating costs.
A closer look at the numbers
Last month, Simple Flying reported Vietnam Airlines is considering the 777X or larger A350-1000 model for its new Ho Chi Minh City (SGN) – Los Angeles (LAX) route. The Boeing 777-9X seats up to 425 passengers in a two-class, higher density configuration, while the A350-1000 seats 366 in a typical configuration (rival Cathay Pacific has 334 on its A350-1000).
Vietnam Airlines is estimating an average fare of roughly $625, based on a total passenger revenue of $85M:
$85M annual pax revenue ÷ 136K pax = $625
That seems low for a long haul flight, although Vietnam Airlines is probably accounting for competition from aggressively priced one-stop itineraries from Chinese carriers.
Fuel accounts for one-third of total flight cost
Vietnam Airlines estimates a yearly operating cost of roughly $143M. Roughly $50M of that hefty price tag is fuel, consisting of over a third of the total operating costs.
FAA grants Vietnam a Category 1 rating
On February 14, 2019, the FAA granted Vietnam a Category 1 safety rating. With the new rating, Vietnamese airlines can apply for routes between the US and Vietnam. They can also codeshare with US airlines, like fellow SkyTeam partner Delta.
The Category 1 rating is the result of an August 2018 FAA assessment. The rating also means Vietnam meets the International Civil Aviation Organization (ICAO) standards for safety, licensing, and aircraft airworthiness.