Fuel hikes threaten Vietnamese airlines’ rapid recovery

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Vietnam’s air logistics has significant room for growth. Photo: VNA

According to Dinh Viet Thang, head of the Civil Aviation Authority of Vietnam (CAAV), domestic air carriers are still losing about $4.3 million per month.

“At the moment, Vietnamese airlines have recovered their flights and the number of domestic passengers is much higher, but Jet A1 fuel has continued to increase, so the revenue does not cover operational costs,” Thang explained. .

Signs were positive after international flights reopened in March, but Vietnam Airlines, Bamboo Airways and others are all being hit by a rapid spike in fuel prices. Jet A1 is expected to reach $160 a barrel over the next few months, which could further reduce its profit chances.

The owner of Bamboo FLC Group, one of Vietnam’s largest multi-industry conglomerates, expressed concern earlier this month over rising costs. Bamboo Airways saw its revenue increase by 50% in the second quarter compared to the first, and exceeded its target set at the start of this year by 30% thanks to the strong recovery in tourism activities. But despite this, Bamboo and others have yet to make a profit in 2022.

Bamboo Airways operates around 60 domestic airlines and 12 international routes and plans to increase flight frequency. It also plans to expand its fleet with the A321Neo and the Boeing 787-9 Dreamliner in the third quarter.

CEO Dang Tat Thang said, “These challenges, coupled with lofty goals, prompted the company to consider attracting new strategic investors to add funds for future development.”

Like Bamboo Airways, the flag carrier Vietnam Airlines, Vietjet and Vietravel Airlines face similar difficulties.

A representative of Vietnam Airlines admitted that its fuel cost in the first quarter accounted for nearly a third of total operational costs and is expected to rise further amid rising global trends. The carrier estimates it will spend an additional $130 million to $174 million on fuel costs this year.

At its June 28 AGM, Vietnam Airlines chief accountant Tran Thanh Hien said the carrier had set 2022 revenue targets for the parent company at $1.84 billion, doubling that of 2021. However, the airline still built a loss plan of over $404 million. Hien explained that despite a rapid recovery, there are still negative factors – continued increases in the price of Jet A1 fuel being the most significant.

“Revenues are growing thanks to an increase in flights, but rising fuel costs are causing more difficulty. When the cost of fuel is $133 per barrel, fuel represents 40% of the operating cost. And if it reaches $160-165 a barrel, the figure is 50%. With such an increase, no airline is able to make a profit,” Hien noted.

Similarly, Vu Duc Bien, managing director of Vietravel Airlines, added that some airlines may even have to suspend operations if fuel prices continue to soar. Some African carriers have suspended flights, while Qantas has announced it will reduce the number of domestic flights until 2023 due to high fuel costs.

To support air carriers, CAAV’s Thang proposed that the Ministry of Transport consider submitting a fuel tax reduction to the government. In particular, he proposed to gradually relax the ticket price cap to allow airlines to build more flexible ticket prices.

As part of efforts to mitigate losses and increase operational efficiency, some airlines are restructuring their operations and increasing international partnerships.

Vietjet, for example, works with global partners such as Lufthansa Technik, AVIATAR, ST Engineering and Changi Airports International to improve service and operational quality. Currently, the low-cost airline is also accelerating digital transformation to increase customer experience and optimize operational efficiency, while diversifying sales channels.

Elsewhere, Vietnam Airlines is giving top priority to a full restructuring before 2025. The work will cover all areas with major solutions for the restructuring of assets, fleets, investment portfolios, financial resources and corporate governance.

The national flag carrier is also strengthening freight transport and opening up new routes. In 2022, it uses A321 aircraft for cargo planes by selling them and then re-letting them.

Source: VIR

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