Foreign airlines seeking to expand into Vietnam’s aviation market have frequently been challenged by regulatory restrictions. We discuss the alternative investment opportunities available within Vietnam’s aviation sector.
The challenge of attracting foreign investment to propel Vietnam’s aviation sector to new heights has long been a concern for industry planners. Demand for aviation services is huge and still growing but attracting foreign capital has been a struggle.
There are a number of factors contributing to the hesitancy among foreign investors to invest in Vietnamese airlines, however, there are alternative investment avenues within Vietnam’s aviation domain.
Indeed, the potential in the aviation sector is huge. However, it has not been tapped effectively. – Dinh Viet Thang, Director of the Vietnam Aviation Administration, in an interview with Vietnam Investment Review (VIR).
Despite facing difficulties penetrating the Vietnamese market with Jetstar Pacific, Jetstar CEO, Gareth Evans, still told Forbes that the Vietnam market still holds significant potential.
“Domestically Vietnam is an incredibly competitive market”, he said, adding “there is 35 percent capacity growth.”
The Vietnamese market is highly competitive, with a potential population of over 100 million people and a strong growth rate. In particular, the low-cost segment dominated by VietJet Air is experiencing rapid growth.
VietJet Air’s remarkable ascent exemplifies the groundbreaking advancement of the low-cost airline concept in Vietnam. During the first half of 2023, VietJet Air’s market share experienced a remarkable transformation; with over 10,000 flights, it was responsible for 37.6 percent of all flights among Vietnam’s domestic carriers.
Notably, VietJet Air stands out as one of the few profitable airlines operating amid the challenging circumstances that have plagued the entire industry, particularly in the aftermath of the COVID-19 pandemic.
The continued expansion of low-cost airlines, coupled with this competitive context, presents a challenging environment for investors seeking to establish a strong presence in the Vietnamese aviation market.
Airline catering
One such area is companies that provide meals and goods for flights. Following a period of stagnation caused by the epidemic, airlines are gradually returning to pre-pandemic conditions, with flights gradually resuming. As travel demand increases, so does the need for in-flight food and beverage services.
Positive signs for Vietnam’s aviation future
There have been some notable improvements and there has been a lot of positive news in the aviation sector of Vietnam, of late.
Firstly, there has been a focus on infrastructure development. According to the master plan for airport and airport system development from 2021 to 2030, the government has approved the construction of eight new airports, bringing the total number to 14 international airports and 19 domestic airports. Of particular significance is the Long Thanh Airport project, which is set to become the largest airport in Vietnam when completed.
There has also been an increase in aircraft purchases. Vietnam Airlines and Boeing recently signed a memorandum of understanding, solidifying a contract for the purchase of 50 Boeing 737 Max aircraft. This deal, valued at US$10 billion is a significant investment in enhancing the airline’s capacity. Similarly, Vietjet entered into an agreement with Carlyle, a company that specializes in finance and global aircraft leasing, to finance Vietjet to the tune of US$550 million in order to purchase additional aircraft from Boeing.
The development of infrastructure and the purchase of new aircraft allows airlines to increase their capacity, open new routes, enhance passenger comfort, and improve operational efficiency. It is a strategic investment to meet the growing needs of the market and remain competitive in the industry. This also helps investors feel more confident about the growth prospects of the aviation industry in Vietnam.
Aviation in Vietnam moving forward
Despite challenges within the legal framework and the competitive market, Vietnam’s aviation industry possesses abundant untapped potential. While the mentioned aspects are noteworthy, there are numerous other opportunities waiting to be explored for statute investors.
Source: vietnam-briefing.com