Vietnam Airlines eyes budget offshoot

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Vietnam Airlines is considering entering Asia's booming low-cost aviation sector with a new offshoot, while aiming to build its home base into a major entry point for Indochina, its chief says.

The state-owned airline is confronted with "growing pressure" from Asia's budget operators, president and CEO Pham Ngoc Minh told AFP in an interview.

"We see opportunities in the low-cost segment," he said, without revealing more details of the group's plans.

From Malaysia's AirAsia to India's GoAir and the Philippines' Cebu Pacific, a host of no-frills airlines have spread their wings in Asia in recent years, in a challenge to the traditionally more expensive flag carriers.

While some analysts argue the market is already too crowded, given the dozens of discount airlines already criss-crossing the skies, others believe there is still room for more competition.

Aviation analyst Shukor Yusof of Standard & Poor's Equity Research said flying is currently affordable for only a relatively low percentage of Vietnam's 86 million people.

He said Vietnam Airlines should "seriously" consider starting a low-cost subsidiary.

Vietnam Airlines also hopes to make the country's two biggest airports, Hanoi and Ho Chi Minh City, a gateway to the fast-growing sub-region of Vietnam, Cambodia and Laos, competing with Bangkok and other regional hubs.

Analysts agree that Indochina, with more than 100 million people, has strong tourism potential, but they say Vietnam remains far from hub status.

Vietnam needs "a lot more spending" on airport and other infrastructure for it to become a gateway that could compete with hubs like Singapore or Hong Kong, said Jonathan Galaviz, chief economist at Galaviz and Co consultancy, which focuses on travel and leisure.

The government says the number of foreign arrivals in Vietnam was more than 3.9 million in the first eight months of the year. By comparison, tiny Singapore's visitors exceeded three million in the first three months.

Analysts say those numbers could be boosted if Vietnam Airlines can begin service to the US, home to a large percentage of the four-million-strong Vietnamese diaspora.

But flights to the US west coast have still not begun pending US Federal Aviation Administration approval of Vietnam's security and other standards, Minh said.

The airline has previously cited similar reasons for delays in the service, which it has talked about for several years.

"We will open our direct flight to west coast America" on receiving the all-clear, said Minh, a veteran of almost three decades with the airline. He assumed the top job in December 2007.

Galaviz called US-Vietnamese routes "critical" to bilateral relations.

Since the restoration of diplomatic ties between the countries in 1995, a wide range of links has evolved.

Established in 1993, Vietnam Airlines joined the industry association IATA in 2006, aligning it with international standards.

It has grown to serve 55 destinations in 19 countries, either directly or through codeshare partners, and Minh sees the airline intensifying its network in Southeast Asia, Australia, Japan, South Korea and booming neighbor China.

"There's a lot of potential for this carrier," Yusof said.

Last year it became the first Southeast Asian airline to join the SkyTeam global alliance, which includes Delta Air Lines of the US and others.

It plans a stock market flotation when conditions improve hopefully within two years to help finance an expansion of its fleet, which currently comprises about 70 aircraft, including 10 wide-body Boeing 777-200ER planes.

"We will have about 115 aircraft by 2015 and about 170 aircraft by 2020," Minh said.

He says the airline is different from other state-owned firms because of its lengthy international business experience. Foreign investors have criticized inefficiency in the broader state-owned sector, a key part of the economy.

"We don't have any subsidy," Minh said at the airline's compound of low-rise Soviet and modern-style blocks. "And we shall survive in this environment."

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