State-run carrier Vietnam Airlines is seeking approval from the Ministry of Transport for reducing its profit target for 2012 by a whopping 80 percent following less than expected earnings in the first five month.
The carrier now projects net profit for the year at around VND69 billion (US$3.3 million), which is VND300 billion lower than the original target.
Anticipated overall revenues this year will reduce by 4.6 percent to VND52.4 trillion, according to a VnExpress report.
The carrier will also have to cut its spending by an extra VND244 billion to achieve the revised reduction target of VND2.08 trillion.
Vietnam Airlines chairman Pham Viet Thanh said revenues in the first five months of the year was VND21.08 trillion, just 38.7 percent of the annual target. The carrier holds more than 75 percent of the domestic market.
Revenues from the domestic market in July, considered the peak of the high season for air travel, fell by 2.5 percent over last year and was much lower than expected, according to the airline.
Airline officials attributed the decline in demand for the national carrier's services to the economic downturn and increased competition from private budget carrier VietJetAir.
They said it will have to set aside more than $6 million as loss provisions for low-cost carrier Jetstar Pacific, which it took over in February.
Experts say the airline's decision to lower its profit target could put more pressure on its initial public offering (IPO) through which it hopes to raise at least $200 million. The IPO is scheduled for the second half of 2013.
Vietnam Airlines also plans to issue more shares to raise its charter capital. The government is expected to have a 70-80 percent stake in the carrier after the equitization.
Equitization, as privatization is referred to in Vietnam, is said to be an initial step in the carrier's planned restructuring process.
It aims to become the third largest carrier in Southeast Asia in 2015.
The carrier submitted its restructuring plan to the Ministry of Transport in April, aiming to increase its capital to $1.41 billion by 2020 and gross profits to $1.08 billion, the Dien dan doanh nghiep newswire reported.