After nearly tens of years of developing private airlines, the aviation market still has not seen any considerable improvement. Passengers still cannot fly even though more airlines have been established.

There is a paradox on the aviation market: despite the high growth rates in the last few years, airlines still cannot make profit or only make low profit. On peak days, passengers cannot book tickets, while air carriers do not want to provide more flights.

More air carriers will be flying after 2012

The youngest air carrier in Vietnam is AirMekong, which was granted its license in 2008 and began flying in October 2010. AirMekong is the last airline which got the license in the period of before 2012. The decision not to license new airlines was made in 2007, when the Vietnam Shipbuilding Industry Group (Vinashin) and Malaysian budget airline AirAsia signed a deal on setting up an airline – VinaAirAsia. The reasons behind the decision to restrict the establishment of airlines, especially foreign invested airlines, were the poor infrastructure and the limited labor force.

Management agencies believe that the establishment of too many air carriers at the same time would lead to the brain-drain and unhealthy competition. Meanwhile, operational airlines still cannot operate well as previously expected.

The first licensed private airline, VietJet, has delayed its flight plan many times. The first airline which provided commercial airlines – Indochina Airlines -  only operated for one year before its financial sources were exhausted. Indochina Airlines many times faced the risk of having its operation license revoked. However, in the last minute, it got the approval from the government agencies to restructure the airline. The managers of the airline assured that they have successfully called for capital and they scheduled to resume flights by the end of the year.

The Civil Aviation Authority of Vietnam CAAV said that it would consider licensing more airlines after 2012. According to CAAV’s Deputy Head Lai Xuan Thanh, now only one application for setting up airlines has been put on the table of the management agencies. The national flag air carrier Vietnam Airlines has asked for the permission to set up VNJet, where it holds 20 percent of capital. However, Thanh said that CAAV did not support the plan because of its unfeasibility.

High growth rate, low profit

The budget airline Jetstar Pacific Airlines, which has been carrying out a lot of policies to restructure its business, still cannot make profit. In the past, the airline used to  hold nearly 50 percent of the market share for the Hanoi-HCM City key air route. However, in 2010, its transport capacity increased only by 3.4 percent over the previous year. Jetstar Pacific is still busy with polishing its brand, renovating the crew and drawing up the plan to cooperate with the foreign partner Qantas to increase its capacity.

2010 is considered a successful year for Vietnam Airlines with the transport output exceeding 12 million passengers. The air carrier opened 11 more domestic and international air routes. However, the profit of the airline was just 350 billion dong out of the total turnover of 36 trillion dong. The adjustment of the dong/dollar exchange rate alone led to the loss of one trillion dong

AirMekong, the only private operational airline, has served 120,000 passengers after three months of operation. for an airline the planned loss-taking time is limited to three years.

Airlines’ Representatives complain that the biggest problem now is the existence of the ceiling airfare scheme (the air tickets of air carriers must not have the prices higher than the ceiling rates). This means, airlines cannot apply a flexible airfare policy for themselves.

C. V