Vietnam’s aviation and the post-pandemic effects of COVID-19

The number of flights has dropped sharply

In 2019, the number of flights was 326.7 thousand, an increase of 10.2% compared to 2018 due to the participation of a new player Bamboo Airways. VietJet Air ranked first in the number of flights operated with an average of about 380 flights per day, accounting for 42.6% of total operating flights, which is an increase of 16.9% compared to 2018. Meanwhile, Vietnam Airline aviation shares account for 36.7% (decreased by 6.6%), Jetstar’s for 10.7% (decreased by 2.2%) and VASCO’s for 3.9% (decreased by 7.0%).

Vietnam's aviation

Source: VIRAC, ACV

In early 2020, Vietnam’s aviation was heavily affected by the COVID-19 pandemic when operating only 1-2% of the total fleet. As of May 2020, Vietnam’s aviation has only partially recovered, while about 70% – 80% of its fleet (250 aircraft) has not been exerted.

In the first 6 months of 2020, the number of flights of all 5 domestic airlines dropped a record compared to the same period last year. Specifically, Jetstar Pacific’s number has reduced 59.2%, Vietjet Air’s equivalent is 37.1% while Vietnam Airlines’ dropped by 32.8%… Except for the rookie Bamboo Airways with 13,938 operating flights, an increase of 108% compared to last year. Part of the reason for this difference is that Bamboo Airways just started commercial operation in January 2019 with a small fleet, but now has risen significantly. 

Vietnam's aviation

Source: VIRAC, CAA

At present, Vietnamese airlines have not been allowed to resume international flights due to concerns of the COVID-19 pandemic spread in some countries. Vietnam Airlines and Bamboo Airways have announced their international flight plans since July 1st, but have not yet deployed.

Aviation sales recorded highest losses

The first 6 months of 2020 can be considered as the most difficult time ever for Vietnam Airlines when this company reported a loss of VND 2.6 trillion after tax in Q1/2020. This is a record loss in the history of Vietnam Airlines and even more than the net profit of VND 2.5 trillion for the whole 2019. In Q2/2020, Vietnam Airlines’ revenue dropped VND 18 trillion, profit fell nearly VND 6.4 trillion compared to the plan. It is expected that in 2020, Vietnam Airlines’ revenue will decrease by VND 49.3 trillion and the loss will be nearly VND 16 trillion.

Vietjet Air also recorded a loss of VND 989 billion in Q1/2020. This is the first time this firm reported a loss in a quarter since its IPO. For air transport revenue individually, Vietjet Air lost about VND 2.8 trillion because of the COVID-19 pandemic in the first 3 months of 2020.

Jetstar Pacific Airlines also fell into a near freezing situation due to the pandemic. According to data from the Department of Aviation, this airline was in hibernation during the period of 19/3 – 18/4 when the number of flights decreased by 97.2% over the same period. In 30 days, the flights served is only 79, equivalent to more than 2 flights per day, which is an unprecedented low in Jetstar Pacific’s operation history. This subsidiary of Vietnam Airlines also reported a loss of VND 1.2 trillion in the first 6 months of the year due to the COVID-19 epidemic.

The recovery trend of aviation industry after the disease

Reducing the environmental protection tax of aviation fuel

Recently, due to the impact of the epidemic, the air transport enterprises have suffered heavy losses and faced a high risk of bankruptcy. Therefore, the Ministry of Finance has proposed to adjust the environmental protection tax rate for aviation fuel from VND 3,000/liter to VND 2,100/liter by December 31st, 2020. The proposal was approved by the Standing Committee of the National Assembly on July 14th.

The fall in aviation fuel price is one of the factors that directly impact the aviation business, reducing the cost of raw inputs. The reduction of 30% in taxes or aviation taxes and fees also stimulate consumers’ aviation services usage, thereby enabling the industry to maintain operations and development.

Expanding domestic travel routes

In the past 2 months, Vietnam Airlines and Vietjet Air have been busily opening more domestic flights and reducing prices to support tourism enterprises to build stimulating tours. Vietjet Air has increased the total number of domestic routes in Vietnam up to 53 lines with 8 new routes connecting Hanoi with significant tourist destinations across the country. Vietnam Airlines also opened 13 new domestic routes associated with famous places in the country such as Hai Phong – Da Lat, Phu Quoc, Vinh – Can Tho … Predicted in July, Vietnam Airlines will open 5 new routes, upgrading the total number of domestic routes to 55.

Reopening international routes

The international market plays an important role in the development of tourism and aviation. Although the recovery of all activities of selling and exploiting domestic routes according to the needs of the market, the domestic market is currently only in half capacity before the pandemic. While international routes often bring about 50-60% of revenue and profits for both airlines and port-deploy operators, a large number of aircraft still hasn’t been brought into service.

However, during the pandemic spread at present, reopening international routes is a risky decision. Currently, Vietnam Airlines is the first airline firm designated to operate international routes in the initial phase. It is expected that in August, some of the regular flights will be re-operated with the frequency of once a week for each country. After the COVID-19 disease is under control, each party may increase the frequency and number of routes available.

The restarting of international routes will bring many benefits to the airline, especially when the recession in the beginning of 2020 has induced many airlines on the brink of bankruptcy if the international market shows no sign of recovery. However, the problems of disease control, isolation after entry … are the actual hurdles if resuming international aviation routes at this time without thorough consideration and careful preparation.

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