High fuel costs hit Vietnam Airlines bottom line
Vietnam Airlines said it had attained revenue of more than 12 trillion dong in the three quarters of the year, an increase of nearly four trillion dong against the year-earlier period. However, this growth has not reflected in Vietnam Airline’s profit due to a variety of reasons said Vietnam Airlines general director Nguyen Xuan Hien. Excerpts of an interview:
What difficulties have Vietnam Airlines faced this year?
It can be said that Vietnam Airlines had to cope with numerous difficulties since the start of this year. First, the bird flu greatly impacted customer markets in North East Asia, France, and Europe. Secondly, during the second quarter, petroleum prices unexpectedly increased and is still rising. To partly eliminate losses due to high increase in fuel costs, the transport ministry and the aviation department have recently allowed Vietnam Airlines to add a surcharge of US$5 to passenger fares for international flights. As for the domestic market, the government is considering exempting the aviation sector from import duties on fuel, which would allow us to avoid adding any fare surcharge for domestic flights. Third, leasing airplanes is now very difficult as leasing costs have become very expensive. Moreover, the aviation market is undergoing tougher and more direct competition.
That may be so but many people complain that Vietnam Airlines are fares are still high because the airline has a virtual monopoly. What are your comments?
A monopoly, in my opinion, should be interpreted properly. In the domestic market, Vietnam Airlines welcomes the establishment of other airlines as well as promotion of existing airlines. [Pacific Airlines]
Surely, the appearance of competition will help make services better because Vietnam Airlines every day has to transport some 16,000 passengers of which domestic passengers account for more than 60%. That means each day around 9,000–10,000 Vietnamese fly with Vietnam Airlines. Needless to say, travel by air is increasing strongly and the promotion of domestic aviation operations is the responsibility of Vietnam Airlines although the development of other airlines is also needed.
Presently, there are three aviation firms providing passenger and cargo services excepting the military service unit. Ceiling ticket prices are set by the government and not Vietnam Airlines. In fact, Vietnam Airlines and Pacific Airlines have repeatedly cut ticket prices depending on the circumstances. Additionally, Vietnam Airlines is also responsible for some other tasks from the government such as to make special flights, to serve national defense and security, and to keep some domestic flight routes which are unprofitable.
As for international flights, it is impossible to say that Vietnam Airlines has a monopoly. You can fly to Taiwan by two airlines and in turn a Taiwanese can fly to Vietnam by a choice of four airlines. While we are prepared to open a flight route to Russia, Russia has opened a flight route to Vietnam. Clearly, this is direct competition.
Concerning investment strategies for development, Vietnam Airlines is reportedly preparing to submit to the government two projects to purchase new airplanes in an effort to meet fleet expansion in the near future?
What is important is that Vietnam Airlines has a well developed aviation development strategy. This is a great effort of the government to strengthen the capacity of the national fleet. To date, the plan to buy 12 airplanes for our five-year plan has basically been completed. Specifically, three airplanes ATR 72 have operated for two years, four airplanes B.777 have been delivered to Vietnam. On September 7, the fourth airplane A.321 was delivered to Vietnam and as planned the one remaining airplane will be transferred to Vietnam Airlines in March, 2005.
Recently, Vietnam Airlines has signed a new contract to lease two aircraft Boeing 777s which is scheduled for delivery in 2005 bringing the number Boeing 777s in our fleet to eight aircraft.
And another two projects to buy new airplanes are being reviewed by the Ministry of Finance and will be submitted to the government later. As scheduled, Vietnam Airlines will buy 10 Airbus 321s and four Boeing 777s. As anticipated, these airplanes will be delivered in 2008.
If the government approves the two projects, Vietnam Airlines will have medium-to long-range and long range airplanes by 2010 which can fly as far as 14,000 kilometers non-stop. By 2010, Vietnam Airlines will have a fleet of 75 different aircraft.
In terms of technical infrastructure investment, we also have to build an aviation industry?
The government has made plans to build and develop the aviation industry. Presently, Vietnam Airlines is building a programme to maintain all kinds of aircrafts. The Boeings Corp is considering producing airplane spare parts in Vietnam. This move is considered as a very good condition for Vietnam to develop its aviation industry.
Security of Vietnam Airlines is assessed very good however there are still many complaints on service quality, particularly flight delays and cancellations?
Over the last nine months, the rate of flight delays of Vietnam Airlines was 12%. However, foreign airlines such as American Airlines is reported to be around 22%, and United 18%. It can be seen that flight delays and cancellations is unavoidable in the industry and cannot be eliminated entirely. Our flight frequency is always increasing and also passenger numbers. For example, if the rate of flight delays of Vietnam Airlines is 10%, each day about 1,000 passengers suffer from flight delays or cancellations.
The problem is that our airport infrastructure is limited and aviation services are poor in general. I think, the main reason is labour quality meaning poor service attitudes of staff when dealing with irate passengers whose flight has been delayed or cancelled. This is a matter of great concern for us.
We are considering compensating passengers when flights are delayed or cancelled in 2005.
Category: Business
