Even
as the local economy chugs along at about 5 percent growth, its slowest
pace in 13 years, demand for domestic air travel is growing by double
digits. That is translating into a surprisingly robust new source of
business for Boeing Co (BA.N), Airbus (EAD.PA) and regional aircraft
makers such as Mitsubishi Aircraft Corp (7011.T), Bombardier Inc
(BBDb.TO) and Embraer SA (EMBR3.SA).
The International Air
Transport Association expects Vietnam to become the world's
third-fastest growing market for international passengers and freight
next year, and second-fastest for domestic passengers. Vietnam's
Aviation Department expects 15 percent growth in domestic passengers
this year, more than double last year's 7 percent rise.
Though
starting from a low base, Vietnam's carriers will boost their fleets in
the next few years, double or tripling them to serve a domestic market
of 90 million people and tourist arrivals growing on average 20 percent
annually.
Vietjet Air passengers exit the aircraft after
arriving at Tan Son Nhat airport in Vietnam's southern Ho Chi Minh city
October 20, 2013.
VietJet Aviation Joint Stock Co, Vietnam's first
private airline, agreed last month to a provisional order for up to 92
Airbus jets worth $9 billion at list prices.
The low-cost carrier
is aiming for a stock market listing in either Hong Kong or Singapore
in 2015 to fund the expansion, which would start with flights to Tokyo,
Beijing, Singapore, Kuala Lumpur and South Korea, then eventually,
China, Russia and Australia and beyond, Managing Director Luu Duc Khanh
said.
"Further it could be the United States, where 4 million
people of Vietnamese origin live. They're waiting for VietJet
anxiously," he told Reuters in an interview.
VietJet plans to
double its fleet by 2015 to 20 jets, and is speeding up work to get
three joint ventures in the air, including one with an undisclosed
carrier in Myanmar and another agreed with Thailand's KanAir, to operate
in early 2014.
Those ambitious plans may have shaken state-run
flag carrier Vietnam Airlines (VNA) into expediting its long-awaited
initial public offering and fleet expansion.
VNA dominates the
local market and will increase its fleet by 28 percent to 101 aircraft
by 2015. It has been preparing for an IPO in the second quarter of 2014.
"The project is right on schedule," said its spokesman, Le Truong
Giang.
Its fleet includes both Airbus and Boeing jets and it has
ordered the Boeing 787 Dreamliner and the Airbus A350. According to
Boeing, VNA has existing orders for eight 787s and 11 more through
leasing companies.
The airline also has its hand in the low-cost
market through a stake in JetStar Pacific, a joint venture with
Australia's Qantas Airways (QAN.AX). JetStar plans to more than triple
its fleet of five Airbus A320s to 16 in the next few years, a spokesman
said.
The airlines and industry experts say the growth potential comes mainly from Vietnam's topography.
Vietnam
is 1,650 kilometers (1,025 miles) in length, its biggest cities and
tourist resorts are far apart and it has poor road and rail
infrastructure. It is also within a few hours of Japan, South Korea,
Hong Kong, Thailand and China and tourist arrivals are on the up, with
5.5 million in the first nine months of the year, a 10 percent rise from
the same period in 2012.
VietJet's joint-venture plans were
therefore a smart move, said Timothy Ross, an air transport analyst at
Credit Suisse in Singapore. "I can't imagine they have much on their
balance sheet... so in terms of building a new business it's far better
to give away some of the potential upside and invest less," he said.
JetStar
had not been profitable and was likely to struggle as competition
increased, Ross said, while VNA had not done itself any favors delaying
privatization. "We should have seen the Vietnam Airlines IPO 3-5 years
ago, but it sat on its hands," he said. "Competition in the airline
industry is inevitable."
By Ho Binh Minh, Martin Petty and Emily Kaiser.
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