Vietnam Airlines Corp., the nation’s state-owned carrier, plans to sell shares at home and abroad to fund an expansion of its fleet and routes, executive vice president Pham Ngoc Minh said. The Hanoi-based carrier, which expects sales growth of 10% a year through 2010, may sell shares at home and in Hong Kong and Singapore within two or three-years, Minh said in an August 21 interview.
“The economic and social environment is stable,” Minh said. “We must expand because of the opportunity.”
Vietnam’s economy grew 7.4% in the first half of this year as the government dismantles barriers and woos foreign investment. Trade and business travel are expected to rise after the country joins the World Trade Organisation later this year, and as Vietnam reduces visa requirements for tourists.
“Vietnam is the flavour of the month,” said Jonathan Pincus, senior country economist at the United Nations Development Programme in Vietnam. “There’s a huge appetite for Vietnamese equities both domestically and among international investors.”
The Vietnam Stock Index has risen 52% this year, the fourth-best performer among any index in Asia, Bloomberg data showed. Vietnam Airlines wants to tap investor interest and transform itself from a state-run airline into one that’s commercially run and privately owned, Minh said.
“Vietnam is clearly a market a lot of investors are looking at and the environment is conducive for an initial public offering,” said Damien Horth, an analyst at UBS Securities Asia Ltd in Hong Kong. “If the management of Vietnam Airlines can outline a sensible, achievable growth path, I’m sure investors can look at it at the right price.”
The nation of 84 million people, which fought a war with the US three decades ago, is normalising relations with its erstwhile adversary. Vietnam Airlines will add flights to Los Angeles or San Francisco in the second half of next year, Minh said. It will also add routes to North Asia, he said.
The airline expects sales to rise to US$1.07 billion this year from US$970 million in 2005 and has ambitions to be one of the three biggest carriers by revenue in Southeast Asia within a decade, Minh said.
“With our growth in GDP, we expect the growth rate of more than 10% to last longer to 2010,” Minh said in an August 21 interview.
The carrier has ordered US$1.2 billion of new aircraft to be delivered between 2006 and 2010, and as much as US$3 billion worth of planes to be delivered between 2011 and 2015, Minh said.
In July, the company said it may order up to 10 Boeing Co 787s. It is also considering Airbus SAS’s A350s. The airline ordered four 787-8s last year in a deal that also included purchase rights to another 11 planes.
Still, rising energy prices may curb expansion plans, with the cost of jet fuel having risen to a record US$93 a barrel on August 8, according to Bloomberg data. Fuel has doubled to 33% of operating costs from 17% two-years ago, and higher oil prices will cut 2006 profit to US$25 million from US$36 million last year, Minh said. In the six months through June, profit was between US$12 million and US$13 million, he said.
“The background on Vietnam is quite exciting but the airline industry is tough,” Horth said.
To alleviate the burden of higher fuel costs, the company last year requested the government ease the cap on fare prices for domestic flights by 15% for peak periods. Minh said the carrier hasn’t heard back from the government.
The carrier’s load factor, a measure of how efficiently it fills its passenger seats and cargo space, is 69%. The load factor for domestic flights is 78% and 67% for international flights, Minh said. He expects to push the average load factor to between 71% and 72% in the next two to three-years.