A Vietnamese airline industry group is asking the Vietnamese Government for a US$1.17 billion bailout package. The Vietnam Aviation Business Association (VABA) has written to Vietnam’s National Assembly Chair and the Prime Minister asking for a suite of measures to support the local airline industry, including a substantial credit package.
An aviation boom goes bust
Before 2020, the Vietnamese aviation industry was riding a substantial boom. In the 10 years to 2017, both Hanoi and Ho Chi Minh City airports were among the 10 fastest growing in the world. Before the worldwide slump in demand hit, Vietnam was expected to be the fastest-growing airline passenger market worldwide.
That kind of environment encouraged established Vietnamese airlines to spend up big ordering new planes and expanding services. It also attracted new players into the local airline market, with some setting up just before the travel downturn.
But twelve months ago, red flags were popping up everywhere for Vietnam’s airlines. Visitor numbers were down 18% in the first quarter of 2020 and down 68% in March 2020. Vietnam’s Government closed the country’s borders to nearly all international arrivals. Domestic services slumped, including on the normally vibrant Hanoi – Ho Chi Minh City sector.
However, Vietnam handled COVID-19 exceptionally well and domestic flying, albeit with a few interruptions, resumed shortly thereafter. According to OAG data, in February 2021, worldwide airline seat capacity was down 47.4% on the previous year. However, across Vietnam’s domestic aviation industry, seat capacity was up 17% on the previous February.
You might see this as a bright spot in an otherwise gloomy aviation environment. But many experts believe the Vietnamese domestic aviation market is oversaturated and overheating. There are a lot of low-cost airlines in Vietnam running a lot of flights, selling cheap fares, and not making any money.
Vietnamese airline industry group asks for a suite of assistance measures
Late last year, the full-service carrier Vietnam Airlines flagged a US$648 million loss for 2020. Unlike many of Vietnam’s domestic airlines, Vietnam Airlines normally operates extensive international services. International services are normally a chance for airlines to pick up hard currencies and a substantial revenue driver. However, most of Vietnam Airlines’ international flights remain suspended.
It’s against this backdrop that VABA is reaching out to Vietnam’s Government for the third time in 12 months for assistance. Previously, the Vietnamese Government has given the local airline industry some support. Last year, the government cut navigation fees for domestic airlines and take-off and landing fees by 50%.
Fees were also waived on outstanding government-guaranteed loans. State-owned Vietnam Airlines, which commands just over half of Vietnam’s domestic market share, also got the green light to obtain over US$518 million in refinancing loans from Vietnam’s central bank.
Now, VABA wants the Vietnamese Government to continue offering discounts on airport and navigation fees. The industry group wants fee waivers on outstanding loans to continue until 2024. It wants to see the managed resumption of international flights to nearby countries with low rates of COVID-19. This would help reboot Vietnam’s all-important tourism industry.
Specific details of the proposed credit package not outlined
While not providing specific details, VABA also requested the Vietnamese Government pony up with a credit package worth up to US$1.17 billion “to support the aviation industry.”
There’s widespread agreement at the government level that Vietnam’s airline industry does need some support. While agreeing to consider VABA’s request, whether the Vietnamese Government will come to the party and agrees remains an open question.
Should the Vietnamese Government step up and support the local airline industry? Or does the Vietnamese airline industry need a shakeout and period of consolidation? Post a comment and let us know.