Vietnam Airlines forecasts net profits of only US$3.3 million (VND69 billion) for 2012, more than $14 million below its earlier target for the year. The result might push back its transformation process into a global air transport conglomerate.
Vietnam Airlines is one of the last companies in Vietnam still into the hand of the Vietnamese government. And as such, the national carrier benefits from all kind of financial and legal support from the State. It explains for example why after allowing Qantas to become a partner in a joint venture to transform Pacific Airways into Jetstar Pacific, the new low cost carrier faced many hurdles to grow. With the consequence that Vietnam Airlines finally stepped into the capital of Jetstar Pacific and now controls 70% of the carrier, the rest being into the hands of Qantas. It then gives to Vietnam Airlines an almost complete monopoly on low cost business in the country, as the airline faces so far a limited –albeit growing- competition from newborn Vietjet in the LCC sector.
Vietnam Airlines’ arrival into Jetstar is part of the Government’s vision to turn the airline into a large carrier group including key businesses in sectors of aviation transport, aviation industry and other relating services in Southeast Asia.
In July, the Ministry of Transport announced that VN would restructure into a corporation consisting of four aviation service companies, 15 subsidiaries, 12 joint ventures compared to the current 18 subsidiaries and 14 joint ventures and six new established companies. At the same time, the company should implement new strategies to its business sectors, restructure the growth strategy and products, look back at human resources and investment and be more efficient to achieve more ambitious financial targets.
The airlines division will consist of the holding company, Vietnam Airlines, maintenance company Vietnam Airlines Engineering (VAECO), LCC Jetstar Pacific Airlines and finally Cambodia Angkor Air, a joint-venture set in partnership with the Cambodian government.
According to VNS, the airline plans to withdraw investments in inefficient non-core businesses including stock, banking, real estate and loss-making enterprises by 2015. It expected that the withdrawal would bring about US$ 25.2 million to the balance and help to reach a turnover target of US$ 43.5 billion and a profit of US$ 0.63 billion in the period of 2012-20 following the restructuring.
However, the first year of this massive transformation plan is likely to be jeopardized by disappointing financial results in 2012. Vietnam Airlines just announced that it would miss its business targets for this year due to increased competition from other carriers in both domestic and international markets. VN management now forecasts profits of only US$ 3.3 million after tax for the year, more than US$14 million below earlier estimations. The new profit estimation represents roughly a fifth of previous forecasts while total revenue would be down by 5%.
Commenting on the announcement, Vietnam Airlines chairman Pham Viet Thanh said the carrier only earned the profit of about US$ 0.6 million during the first five months as VN had to reduce air fares and flights due to slower demand.
The airline blames fierce competition from new air carrier Vietjet Air as one of the reasons for the missed targets due to a loss of market share, especially for the two major routes from Ha Noi to HCM City and from HCM City to Da Nang. Another factor was that VN had to spend up to US$ 6 million to establish a reserve fund after its merger with Jetstar Pacific in February, said the Chairman.
The missed targets may make it difficult for Vietnam Airlines to reach its target of earning at least $200 million after launching its initial public offering (IPO) slated for no later than the end of 2013.
Luc Citrinot a French national is a freelance journalist and consultant in tourism and air transport with over 20 years experience. Based in Paris and Bangkok, he works for various travel and air transport trade publications in Europe and Asia.
