Lower demand hurts airline industry's recovery

In order to compensate for the decline in traditional markets, Vietnamese airlines have been actively looking for new international routes from major hubs.

Slower recovery in international markets and lower demand in domestic air travel have been hindering the recovery of Vietnam's airline industry, said industry insiders and policymakers.

"Economic downturn, inflation and exchange rate fluctuation are all contributing factors to consumers' tightening spending, which has resulted in lower demand in key markets including Japan, South Korea and China," said Dinh Viet Thang, director of the Civil Aviation Authority of Vietnam (CAAV).

According to statistics from the Vietnam National Administration of Tourism, in the first nine months of 2023, air travel between Vietnam and Japan, and Vietnam and South Korea, had only recovered to 80 per cent of pre-pandemic levels.

Meanwhile, economic slowdown and visa policies have been significantly hindering the recovery of the Chinese market at just 17 per cent of the pre-pandemic level. This had a much bigger-than-expected impact on Vietnam's airline industry as China has become one of the largest tourism markets in recent years.

In addition, according to a report by domestic airlines, the first three quarters of 2023 saw a drop in revenue generated from chartered flights to just under 10 per cent of the same figure in 2019. This is significant since charter flight operations played an essential role in improving the airlines' efficiency due to a focus on nighttime flight schedules.

Thang said that in order to compensate for the decline in traditional markets, Vietnamese airlines had been actively looking for new international routes from major hubs including Ha Noi and HCM City, namely to Australia and India. While it had started to show some results, airlines said there wasn't much potential for growth as the above-mentioned routes were quite saturated, at least for the short term.

As a result, airlines had been turning attention to the domestic market's recovery, which produced an oversupply.

According to a recent CAAV report, supply in the last five months of 2023 has increased by 15.2 per cent compared to the same period in 2019. Meanwhile, demand increase has been estimated at 7.5 per cent.

In an earlier development, Bamboo Airways temporarily suspended routes from Hà Nội and HCM City to Phu Quoc, Cam Ranh and Da Nang, as well as some of its international routes to Australia and the UK. The airline is currently operating just 20 out of its 29 registered aircraft.

"We have seen the peak travel season of summer 2023 ending very early. By the end of July, demand decreased significantly, unlike previous years, in which demand lasted late into August, even early September," said a representative from a major domestic airline.

The industry will likely face additional challenges from now until the end of the year, including rising fuel prices which could increase to US$119.36 per barrel, significantly higher than most airlines' budget estimates of $106.86 per barrel. Other factors including a stronger Vietnamese đồng and higher input costs will likely cut deeper into the airlines' profit.

To make matters worse, airlines were still struggling to recover from low cash flow from the pandemic, which has resulted in debts and a considerable amount in interest.

Vu Duc Bien, CEO of Vietravel Airlines, said many airlines had been selling tickets at a loss and called for the implementation of floor prices, based on the operational models of each airline.

"Air travel is the beating heart of the industry, but it has been left vulnerable and unstable. Meanwhile, other businesses in the ecosystem including airports, gift shops, catering services and ground services have been performing quite well. This is a paradox we must address," Bien said.

Source: VNS