Private airlines hit turbulence even before takeoff

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Five private airlines have been licensed in Vietnam since 2007, but each of them is struggling to take off, with one having already crash-landed.

Air Mekong operates flights while VietJet Air is expected to commence services late this December after many delays. But the others are finding it hard to launch or, in the case of Indochina Airlines, resume operations.

Air Mekong, in partnership with US-based Skywest Inc., launched its first flights all domestic late last year. But within a few weeks it had to stop flying to Da Nang because there were not enough paying customers. Some of its flights had just 10 passengers while its CRJ-900 aircraft have 90 seats.

Truong Thanh Vu, a senior manager at Air Mekong, said: "Difficulties, especially for newly-established airlines, are unavoidable in the context of the economic recession, which has hit demand for air travel."

Higher exchange rates are also a big concern for the carrier since it buys jet fuel, purchases or leases aircraft, and pays foreign employees in dollars but collects fares in dong. Input costs are also rising due to higher fuel prices and service costs, but the government has not allowed airlines to increase fare ceilings.

VietJet Air, the first private airline to be licensed in Vietnam, is finally expected to launch its first flight on December 25 after many delays. The low-cost airline will operate on the Hanoi-Ho Chi Minh City route with three Airbus A320 aircraft it has leased from a Middle East company.

Last year it had sold a 30 percent stake to Malaysian budget carrier AirAsia, setting the stage for a new low-cost airline branded VietJet AirAsia to operate both domestic and international services.

However, AirAsia withdrew from the joint venture in October, saying it had failed to get permission to use the AirAsia name for VietJet's operations.

The other private carriers Indochina Airlines, Trai Thien Air Cargo, and Blue Sky Air have had an even harder time.

Blue Sky has yet to announce plans for its charter jet service while Trai Thien is struggling with personnel problems. Several employees decided to quit after the Civil Aviation Administration of Vietnam (CAAV) prohibited the carrier from importing old aircraft.

Indochina Airlines, the first private carrier to take off, suspended its services in 2009 after just one year of operation due to debt problems.

A top CAAV official said the agency had recommended that the Ministry of Transport should cancel Indochina's license since there were no signs it would be able to restart its business. The airline had run up debts of millions of dollar to fuel and food suppliers.

Recently a court in Ho Chi Minh City ordered Indochina to repay its US$1.3 million debt to Asia Commercial Bank after the bank sued over a letter-of-credit dispute.

"To be able to fly, airlines must prepare well in terms of finance, employees, and business strategies. However, our private airlines have yet to do that," the CAAV official said.

An industry insider said it is not easy for private airlines to compete in the domestic aviation market since only a small number of the 86 million population can afford to travel by air.

Yet, they dare not look beyond domestic routes. An airline chief explained to Thanh Nien Weekly that private carriers did not have enough money to lease or buy large aircraft for long-haul trips. It was also very difficult for private airlines to recruit pilots because there was not enough supply, he added.

Monopoly concerns

Vietnam Airlines plans to buy a 70 percent stake in budget carrier Jetstar Pacific.

The flag carrier has around 80 percent of the market share, while Jetstar Pacific has 17 percent.

Australian carrier Qantas has some 27 percent stake in Jetstar Pacific now while the rest is held by the sovereign fund State Capital Investment Corp. and travel firm Saigontourist.

The government is mulling the stake sale because it wants to restructure Jetstar Pacific which has been suffering losses of around $2 million a month for the last few years, and faces a serious threat of bankruptcy.

"The government is studying the restructure of Jetstar Pacific Airlines," said the CAAV official.

But industry insiders were uncomfortable with the prospect, saying Vietnam Airlines' stake-holding in Jetstar Pacific would cause a monopoly in the market.

Vu of Air Mekong said his carrier was studying measures to cope with the new situation. However, its business strategy has not been changed yet. "In the coming time, we would continue to focus on tapping domestic routes with our four aircraft according to our initial plans."

Nguyen Cong Hoan, deputy director of travel agent Hanoi Redtour, said about the monopoly: "In a market with only a few airlines, customers would not have many choices, and have to accept any price they are offered."

Airfares account for 50 percent of the cost of a tour in Vietnam compared to just 20-30 percent in other countries.

Up to 70 percent of his firm's tours are by Vietnam Airlines, he said.

The only other carrier in Vietnam is Vietnam Air Service Company, or VASCO, a fully-owned subsidiary of Vietnam Airlines.

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