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Out from the clouds

Released at: 23:05, 05/02/2015

Out from the clouds

National flag carrier Vietnam Airlines finished a disastrous 2014 for the aviation industry in reasonable shape and is ready for a good year ahead in its new incarnation as a joint stock corporation.

by Linh Vu

2014 was a troublesome year for aviation around the world and Vietnam Airlines also had to deal with its own bad luck. As its recently published annual report shows, though, the national flag carrier recorded significant achievements in terms of passenger numbers and revenue and profit growth.

Last year Vietnam Airlines operated more than 118,000 flights (a 3.8 per cent increase against 2013), carrying more than 15.75 million passengers (7 per cent higher). Total consolidated revenue reached almost VND72 trillion ($3.37 billion) - a modest increase of 2 per cent compared to 2013 - but profit-after-tax increased significantly, by 28 per cent to VND647 billion ($30.3 million). The revenue result was much lower than the target of VND75 trillion ($3.51 billion) but 2014 was still considered a “satisfactory” year by the carrier.

Disastrous 2014 for aviation

Explaining the “satisfactory” results, Mr. Pham Viet Thanh, Chairman of Vietnam Airlines, lamented that 2014 was quite a disastrous time for the aviation industry and Vietnam Airlines finished the year in a good position despite having suffered in a variety of ways. 

The twin Malaysia Airlines disasters had a considerable effect on passenger sentiment. Determining the exact number of passengers who chose not to fly at all makes it difficult to put a figure on the effect on Vietnam Airlines, but the political instability in Ukraine resulted in Vietnam Airlines cutting down the number of flights to Europe, with a revenue decline of approximately VND108 billion (more than $5 million). 

The political crisis in Thailand also affected passenger numbers, by 14 per cent, for a revenue decline of VND480 billion (nearly $22.5 million). Even worse, China illegally deploying an oil in Vietnam’s Exclusive Economic Zone (EEZ) in the East Sea in the second quarter of the year was estimated to have resulted in a 35 per cent fall in passenger numbers compared to the same period of 2013, for VND1.5 trillion (more than $70 million) in lost revenue, almost VND1.2 trillion ($56.2 million) of which was on China flights alone. Vietnam Airlines also suffered from currency devaluations around the world, including the Russian Ruble and the Japanese Yen. 

Against such adverse issues, the carrier implemented various production and business solutions in a bid to reach its targets, such as using serviceable aircraft more often and cutting certain routes with low travel and freight demand. It also reorganized its workforce, among other things, saving VND493 billion (more than $23 million), though Mr. Thanh said that employee incomes were maintained. He also emphasized that despite failing to reach its targets, Vietnam Airlines successfully managed to uphold its quality and the rate of late and cancelled flights fell considerably.

Better year ahead

In talking about plans for the new year, Mr. Thanh said he believes 2015 will be a special year for Vietnam Airlines, with it making a significant transformation into a joint stock corporation. To simplify its equitization and improve its investment efficiency, it successfully divested from five non-core businesses and is in the process of divesting from ten more, totaling VND300 billion ($14 million) in investment, under the restructuring plan approved by Prime Minister Nguyen Tan Dung.

Equitizing a carrier had no precedent in Vietnam so many issues appeared out of the clear blue sky. Nevertheless, in assessing the equitization, Mr. Thanh was satisfied with the roadmap Vietnam Airlines undertook in 2014. The initial public offering (IPO) and the sale of preferential shares to the carrier’s staff were conducted on November 14 and the IPO auction was carried out on the Ho Chi Minh City Stock Exchange in mid-December. 

Vietnam Airlines is now working with international consultants to put into action procedures to sell shares to strategic investors. “The selection of strategic investors will be completed by March 23,” Mr. Thanh said. “If nothing changes, Vietnam Airlines will hold a general meeting of shareholders for the first time on March 31 and the Vietnam Airlines Joint Stock Corporation will officially come into being in May.”

According to Mr. Pham Ngoc Minh, CEO of Vietnam Airlines, despite the difficulties, its high growth in revenue and profit are evidence of Vietnam Airlines’ effectiveness and efficiency during its initial restructuring. This year the carrier is expecting remarkable growth in passenger numbers, estimated at 16.7 million (6.2 per cent higher than in 2014) and it has deals in place to receive new generation aircraft such as the Airbus A350 and the Boeing B787. 

In fact, the destination of the restructuring phase is improving business results towards making Vietnam Airlines become an innovative carrier and the third-largest in the region, with service quality of international four-star standard. 

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