Covid-19 pushes Vietnam’s aviation industry to the limit
Suspension of flights between Vietnam and China leads to potential losses of 400,000 passengers per month and VND10 trillion (US$430 million) in revenue for Vietnamese airlines.
Vietnamese airlines served 870,000 foreign passengers in February, a decline of 39.5% year-on-year, while the suspension of flight routes between Vietnam and China could lead to a potential loss of over VND10 trillion (US$430 million) in revenue for the aviation industry.
In total, local airlines served 3.7 million passengers in February, down 13.7% year-on-year, including 870,000 foreign and 2.8 million domestic passengers, down 0.7%, data from the Civil Aviation Authority of Vietnam (CAAV) revealed.
Additionally, the number of passengers arriving at Vietnamese airports reached 8.1 million in February, down 11.6% year-on-year, including 2.4 millions of foreign passengers, down 29.8% and 5.7 million domestic passengers, falling by 0.7%.
On February 1, the CAAV announced its suspension of all flights between Vietnam and China at the request of Prime Minister Nguyen Xuan Phuc, a key measure to prevent the spread of Covid-19 epidemic.
As the number of flights between the two countries accounts for 26.1% of total number of international flights from airlines in Vietnam, the decision is predicted to cause losses of 400,000 passengers per month and over VND10 trillion (US$430 million) in revenue, stated the Ministry of Transport (MoT).
Subsequently, national carrier Vietnam Airlines, budget airlines Vietjet Air, Jetstar Pacific and Chinese airlines have to cancel a combined 80 flights per day. Notably, Vietnam Airlines has canceled 1,000 flights to and from the Chinese market in February, causing a loss of VND200 – 250 billion (US$8.61 – 10.76 million) in revenue per week. The carrier also estimated a 50% decline in the number of its international passengers transport, and even 70 – 80% in passengers from East Asia during the period.
Subsequently, the suspension would affect revenue of domestic flights , not to mention additional costs for ticket refund and other preventive measures against the epidemic, among others.
In addition to airlines, companies in the aviation industry also face declines in revenue, including Airport Corporations of Vietnam (ACV) and Vietnam Air Traffic Management Corporation (VATM), following a cancellation of over flights between Vietnam and China.
Amid the complicated evolution of Covid-19, the MoT set up three scenarios for Vietnam’s aviation market. For the first scenario when Chinese authorities are able to contain the epidemic in April, total air passengers of to Vietnam would be around 80 million, up 1.1% year-on-year, and the number of passengers arriving at airports of 119 million.
However, in case China announces the containment of the epidemic in June, the market would handle 74.6 million passengers in 2020, down 5.7% year-on-year and the number of passengers via airports to reach 111.6 million, down 4.2%.
If China is free from the epidemic by August, the Vietnamese aviation market could lose up to 17.2% of passengers to 65.6 million, while the number going through airports is forecast to stay at 98.5 million, down 15.5%.
No-growth scenario for 2020
KB Securities previously predicted Vietnam major airlines such as national carrier Vietnam Airlines and budget airline Vietjet Air are predicted to face a no-growth scenario in 2020, due to slower growth or even a decline in the number of international tourists on fear of Covid-19.
This is not to mention the joining of new airlines in the aviation market, making the competition fiercer.
According to KB Securities, international flights accounted for 66% of revenue for Vietjet Air (2019) and 65% for Vietnam Airlines (2017). In recent years, major driving forces for local airlines mainly came from opening new international flight routes as the domestic market become saturated.
KB Securities expected the nCoV outbreak to cause severe consequences to the aviation industry and tourism similar to Severe Acute Respiratory Syndrome (SARS) from November 2002 to July 2003.
Countries in East Asia – Pacific witnessed a boom in their respective aviation industries during the 1999 – 2002 period with the average compound annual growth rate (CAGR) of 9.9%. However, SARS plummeted the growth number of tourists via air transportation to 0.7% in the region in 2003, however, the number rebounded strongly to 39% in 2004.
In case of Covid-19, KB Securities predicted the impact to be more difficult to evaluate for Vietnam, due to (1) the close proximity between Vietnam and China and the spread of the disease which is faster than SARS; (2) the ratio of Chinese tourists to foreign arrivals to Vietnam is increasing every year, reaching 32% in 2019 as airlines open more flight routes to Chinese provinces and cities.
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