VIETJET AIR has gone from start-up to Vietnam’s largest private airline in five years. Now it is pushing overseas to keep up that growth and absorb a bumper order of more than 200 planes: no easy task in a cutthroat southeast Asian market.
The airline, which was set up in 2011, grabbed headlines with its bikini-clad flight attendants. It tapped a rich vein – a fast-growing economy and a young population that was starting to travel more.
But VietJet’s next step will be more challenging, industry analysts and executives say, as it expands further beyond Vietnam into choked southeast Asia, competitive China or Russia, where VietJet’s fleet of narrow-body jets would confine it to the country’s east.
Infrastructure in the region is clogged and new airport slots are rare. Even Kuala Lumpur, a less crowded airport, is highly competitive, thanks to airlines like AirAsia. That has raised questions about VietJet’s ability to absorb one of the region’s largest aircraft orders.
“(VietJet) have been extremely successful in the first five years but what they have done has been entirely domestic,” said Singapore-based analyst Brendan Sobie at consultancy CAPA.
“The domestic market will start to slow and it is more difficult to expand internationally – some people doubt that they can continue (growing) at the current rate.
“According to CAPA, Vietnam’s domestic aviation market grew 30 percent in 2016 to 28 million passengers – nearly five times the growth rate of the broader economy.
At VietJet’s gleaming offices in Ho Chi Minh City, its chief executive and founder, Nguyen Thi Phuong Thao – also Vietnam’s first female billionaire – outlines plans to push into China, Australia and Russia, where she studied and first worked.
She dismisses concerns of excess competition, even in China, where local airlines have boomed. More than 10 Chinese carriers have begun flying since the aviation regulator relaxed a six-year suspension on new airline licences in 2013.
“Other countries are still doing business with China and VietJet also has its own advantages,” she told Reuters.
“We can ally with Chinese airlines when wanting to expand in the country’s local market.”
Unlike other new generation carriers in the region who have sought to set up alliances to gain clout without merging, VietJet has resisted.
Among the airline’s most imminent concerns will be its large aircraft order – more than 200 planes, including more than 100 Airbus A320 family aircraft and 100 Boeing 737 Max 200s – a mixed approach rarely taken by low-cost or new generation airlines, who prefer to streamline engineering needs.
The Boeing order in particular, announced during a visit by U.S. President Barack Obama, prompted questions over whether the order was placed for political reasons. Thao dismissed this.
Industry sources, however, say some of the 200 planes on order may be subject to reconfirmation or other get-out clauses.
Thao says the airline has support to finance its orders, worth over US$20 billion, but has given no detail. The group has five trillion dong (US$221 million) in debt.
A Boeing spokesman said it had no change to its order. Airbus, which analysts say is most exposed to budget airlines in southeast Asia including VietJet, declined to comment.
VietJet ended 2016 with some 40 aircraft but is targeting more than 200 by 2023.
And it is not without growth potential. Asia Pacific passenger growth is the fastest in the world. The carrier’s pre-tax profit almost doubled last year to over US$100 million and it sees its bottom line rising by almost a third this year, thanks to a low cost base.
An initial public offering to raise US$170 million valued VietJet at US$1.2 billion. Shares start trading in February.
“So far, so good,” said analyst Shukor Yusof of Endau Analytics, describing growth so far as ‘a feat’.
“But I’m a bit skeptical if this rapid growth can be sustained without affecting the airline’s bottom line.” – Reuters