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Air France expands in Vietnam

Dao Nguyen, director representative of Air France in Vietnam, talks about the long history of the French carrier in this country and expresses cautious optimism about the future of the Vietnamese aviation industry.

Thanh Nien Weekly: How long has Air France been in business in Vietnam?

Dao Nguyen: The first flight operated by Air France from France to Vietnam was in 1931. The flight from Marseille to Ho Chi Minh City, known as Saigon at the time, took ten days with 18 stops.

In 1932, we started to have weekly flights between the cities.

After 1975, Air France was the first international carrier that continued to operate from Europe, particularly from Paris, to HCMC with Boeing 747 aircraft. We only missed Vietnam for around two weeks or one month.

This winter, starting November 1, we are able to offer five services per week from HCMC to Paris, and six from Hanoi to Paris with code share agreements between Air France and Vietnam Airlines.

This partnership, is it possible because you are in the same alliance, the SkyTeam?

Our cooperation is not only based on the fact that we both are SkyTeam members. We had bilateral cooperation even before Vietnam Airlines joined SkyTeam last year. But Vietnam Airlines joining our alliance structure represents one of the main reasons why we're willing to improve our cooperation in a deeper way.

We had two things to consider. The first was how to get synergies via cooperation with a partner in order to get the market presence by optimizing the cost and risk. The second: among the partners, who will be the most strategic that we can count on, regarding the network complementarities, the respective home-markets, the business-minded, etc.

For Southeast Asia, Vietnam Airlines is considered by Air France as a strategic partner with whom we can grow together in a friendly way.

The airline industry is struggling. When do you think we can see a recovery?

If I can confirm to you the exact date when the recovery will be, I will not be here and probably working for French authorities.

But what everybody knows is that the airline industry turns around in circles of ten years. During the first few years of the circle, you will have increases and growth. After that there should be a decline.

We have two factors that are unstable, starting ten years ago, which are fuel prices and the US dollar. At Air France, we have two sources of revenue, one in euro and the other in US dollars. Given the depreciation of the dollar against the euro, it will be very risky for carriers that have revenues mainly in dollars or other currencies, to have costs in euro. Moreover fuel prices have increased five times over the past few years.

And we are in an economic environment which favors competition coming from the low-cost entrants who offer cheaper prices for low-cost airline products. Ticket prices continue to decrease while operational costs keep increasing. So we have to manage this imbalance. For example, if we operate daily flights, we will need more aircraft. Reducing the frequency from daily to four or five times per week and using big aircraft in order to decrease the unit cost is one of the potential ways of improving productivity.

The next two years, the situation would be very difficult. I remember two years ago, experts agreed that 2011 should be a year of recovery... but then we had an unexpected financial and political crisis in Europe.

Can you tell us more about the growing competition from low-cost carriers?

From the Vietnamese market point of view, I assume that the competition with low-cost carriers has much more of an impact on Vietnam Airlines.

Regarding Air France, we have a different segment with long-haul flights from Vietnam directly linked to our hub, Charles de Gaulle; and our network density allows us to cover not only the main gateways, but also a large number of destinations worldwide (Air France-KLM operates from Paris and Amsterdam to 124 countries with 600 modern aircraft).

Some airlines are very aggressive in terms of pricing. But for the time being, Vietnam Airlines and Air France are the only two carriers who are able to provide direct flights from Vietnam to Paris and the main gateways in Europe. We fly around 12 hours, while other carriers operate with one or two stops and the elapsed time goes from 17 to 20 hours. It depends on the clients; whether they accept to pay cheaper prices and waste much more time with the connecting stops, or they decide to pay for a better product in terms of quality and time saved.

Honestly, I think the local market is not convinced yet about the way to consume. A few clients are willing to pay US$4,000 for a luxury bag, because at the end of the day, they get a tangible product in their hand. But they are not yet willing to pay the same price for a business class ticket because it's a service. I think the relationship or understanding between the Vietnamese customer and the product, as a service, is based on a different premise compared to European or other Asian clients.

So is there growth potential for the Vietnamese aviation sector?

As far as I know, growth in the number of passengers was around 20 percent in October compared to the same month last year. This includes all flights in and out of Vietnam. Regarding flights from Europe to Vietnam, the growth was around 5 or 6 percent.

Vietnam has high potential in terms of air traffic. And I don't mean that the traffic we have right now is nothing.

When you compare Vietnam to Thailand, people often say Thailand is stronger in terms of tourism traffic. But Vietnam has a long coastline from the north to the south, meaning we have great potential to develop tourism. The question is do we have the appropriate infrastructure to be able to absorb this tourist traffic?

Tan Son Nhat Airport in HCMC has been managing between 11 and 15 million passengers per year. If the natural growth is around 5 percent per annum, in the next two years, the airport should be at full capacity. From that perspective, how can we expect more when we don't have the appropriate infrastructure to manage such growth?

The airport has to invest in order to support upcoming growth, even if local authorities are thinking about the new Long Thanh International Airport in Dong Nai Province, which would only be operational starting 2020 or 2030.

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