High taxes, expensive imports cause turbulence for Vietnam airline industry

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An aircraft refuels at Tan Son Nhat Airport in Ho Chi Minh City. Photo courtesy of Tuoi Tre

The airline industry has been having a hard time recently, and a former head of a carrier is concerned about its future since it is weighed down by massive costs.

Luong Hoai Nam, former director of budget airline Jestar Pacific and still a major shareholder, said the airline has never "seen profits" just like other small carriers like VietJetAir.

Indochina Airlines, license in 2008, lost its license in December 2011 after remaining inactive for an extended period. It had stopped flying by October 2009 due to financial difficulties, which included a lawsuit against it by Asia Commercial Bank for debts of over $1.3 million.

Air Mekong stopped flying this month, citing the need to restructure and saying it will resume flying sometime this year, but Tuoi Tre newspaper quoted Nam as saying the claim should not be taken seriously.

Vietnam Airlines last year reported a profit of nearly VND40 billion (US$1.9 million), but it came from ground services and rents rather than flying passengers, he said.

"Vietnam Airlines has been using profits in one area to subsidize losses in another, and it still enjoyed profits, but the difference is coming closer to zero."

He said Vietnamese carriers are having to spend more than their counterparts in most other countries.

"The aircraft are expensive as most of them are leased. Foreign pilots and engineers cost more partly due to high personal income tax. Maintenance also cost more as most of it is still being done abroad.

"Fuel is more expensive due to different kinds of fees and taxes. Fees related to using the airports are also high as investors have to make up for losses incurred by small, less busy airports."

He compared non-fuel expenses, saying it costs Air Asia 2 US cents per seat while for a low-cost carrier in Vietnam it is around 3 cents.

Air Mekong has said its operations cost up to VND4 billion ($190,412) a day.

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But many Vietnamese complain about high fares, Nam said, warning it is a difficult problem to resolve.

"The airlines need comprehensive help."

He said the government should cut fuel import duties as much as possible and intervene in the airport fees issue.

"The airline business will get worse if the government keeps allowing investment in airports.

"In the long term, Vietnam should only allow airports to be built where there is enough demand."

He said he saw nothing positive in the airline industry's future, with most carriers not having strong shareholders to sustain extended losses, except for Jetstar which is backed by Vietnam Airlines and Qantas of Australia.

The risks would become greater when an ASEAN open skies agreement takes effect in 2015 and Vietnam would have to compete with strong regional players who would be allowed to fly freely to Vietnam.

Vietnamese carriers fly 12 million passengers a year on domestic flights, meaning the rate of passengers per population is only a quarter that of Thailand and a twentieth that of Australia, which flies 57 million passengers on domestic flights with a population of 23 million.

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