Low-cost aviation market promising, but entry isn’t easy
The low-cost aviation market has attracted many investors, but some low-cost carriers (LCC) have had difficulties in obtaining operating licenses.
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The competition in the market is getting hot as a series of new investors have turned up.
Most recently, in March 2017, Gumin, a subsidiary of Thien Minh Group, decided to join hands with Air Asia to set up a new LCC, planning to take off by early 2018.
A local newspaper in mid-August quoted Tran Trong Kien, president of Thien Minh and CEO of Gumin, which holds a 70% stake in the joint venture, as saying that the company was following necessary procedures to apply for a license in early September.
Analysts commented that the attractiveness of the Vietnamese market is the major reason that prompted Air Asia to try to join it after three previous failed attempts.
The first attempt was made in 2010, when Air Asia wanted to cooperate with Vietjet to set up Vietjet Air Asia. In the second attempt, it wanted to contribute capital to Jetstar Pacific and in the third, it planned to join hands with Vinashin to set up a new airline.
The domestic aviation market is so attractive that it has caught the eyes of amateur investors as well. FLC, a real estate developer, which has no relation to the aviation sector, has stated it will join the market with Viet Bamboo Airlines, capitalized at VND700 billion.
The application for a license was submitted to CAAV last June.
Meanwhile, Vietstar Airlines is awaiting a license and Vietnam Airlines is drawing up a plan to set up SkyViet.
At present, four carriers are exploiting the domestic market, namely Vietnam Airlines, Vietjet Air, Jetstar Pacific and VASCO.
Vietnam Airlines now owns VASCO and holds a 70% stake in Jetstar Pacific.
The market is controlled by two big players – Vietnam Airlines and Vietjet Air. In terms of domestic flights, the former held 42.5% of market share, while the latter 41.5% in 2016.
Kien, at a private sector forum in July, commented while the demand for travel is high, Vietnam only has two LCCs. Vietnam needs to have about 10 airlines, he said.
However, it is not easy to get licenses to provide commercial flights. At least three air carriers are awaiting licenses.
Luu Bich Ho, former director of MPI’s Development Strategy Institute, believes that LCCs are becoming even more popular worldwide and that Vietnam needs to license more LCCs to satisfy demand.
However, he said it is necessary to be cautious in licensing because this is a special business field.
