AirAsia set to meet its match in Vietnam’s Vietjet (Part I)

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AirAsia is entering a market where the skies are already crowded with key players, including the ambitious budget carrier Vietjet. – AirAsia đang bước vào một thị trường đã có quá đông người chơi, bao gồm cả hãng hàng không giá rẻ đầy tham vọng Vietjet.

Low cost-carrier drives growth by copying from Southeast Asia’s budget pioneer – Hãng hàng không giá rẻ (Vietjet) tăng trưởng mạnh bằng cách sao chép từ nhà tiên phong của Đông Nam Á (AirAsia)

[Reading level: C1 – Advanced]

KUALA LUMPUR — Three times Tony Fernandes has tried to take AirAsia Group into Vietnam, one of Southeast Asia’s fastest growing aviation markets. Three times he has failed. Now, the unstoppable head of the region’s first and largest low-cost carrier is going for a fourth attempt.

 

But he may have met his match in Vietnam’s Vietjet Aviation, which in just seven years has snapped up 45% of the local market, largely by imitating — and sometimes topping — AirAsia’s brash, confident business model.

 

Fernandes, a former accountant and Warner Music executive, started his airline with just 1 ringgit ($0.24), 40 million ringgit of debt, and a planeload of confidence. He faces off against Vietjet’s high-flying Nguyen Thi Phuong Thao, who made her first million dollars trading goods while studying in Moscow. Thao has gone on to become one of Southeast Asia’s first female self-made billionaires, partly thanks to deployment of her early wealth in the creation of Vietjet.

 

Both understand the vast potential of Vietnam, an emerging economy with an annual growth rate ranging between 6% and 7% over the past three years. Of its population of 95 million, over 40% is between 25 and 59 years old. Yet budget-flight penetration is one of the lowest in Southeast Asia, at 1.7 aircraft per million people operated by low cost carriers, compared with 2.1 in the Philippines and 2.6 in Indonesia, according to Vietjet.

 

It is this potential that makes Fernandes determined to crack the Vietnamese market, the missing piece in the puzzle for the Malaysia-based airline with operations in India, Indonesia, Japan, the Philippines and Thailand. “AirAsia is an ASEAN airline,” said Fernandes on Dec. 6. “And in ASEAN, Vietnam is one of the remaining countries with a large population that we are not in.”

 

His latest attempt was sealed in December when AirAsia struck a deal to set up a joint venture with Vietnamese tour operator Thien Minh Group, by the second half of 2019. AirAsia will hold 30% of the venture.

 

AirAsia Group CEO Tony Fernandes – CEO của AirAsia, ông Tony Fernandes

But Vietnam’s skies are already crowded with several key players vying for airspace. In addition to Vietjet, national carrier Vietnam Airlines and its low cost affiliate Jetstar Pacific Airlines, jointly owned with Australia’s Qantas Group, operate commercial flights. A fourth, Bamboo Airways, is hoping to make its first commercial flight in the coming weeks.

 

Vietjet, focusing on the same price-conscious market and often employing the same savvy marketing techniques, arguably poses the most significant challenge to AirAsia’s Vietnamese ambitions.

 

Founded in 2007, the budget airline carried its first passengers in 2011 and has seen compound annual sales growth of 46% over the past three years. Its fleet of 60 aircraft is one of the youngest in aviation, with planes averaging less than 3.5 years in age. The carrier has placed orders for a further 371 jets to be delivered by 2025.

 

Vietjet, which listed in February 2017, recently overtook AirAsia in terms of market capitalization with a value of $3.6 billion in September — the second-highest for a Southeast Asian carrier after Singapore Airlines. Meanwhile, AirAsia’s market value stands at $2.5 billion, even though it dominates the region through a joint venture network operating 208 aircraft, with another 375 jets on order.

 

Yet both carriers face challenges. Barely two weeks ago on Dec. 25, Vietnam’s aviation regulator halted Vietjet’s expansion and put the airline under supervision following incidents which it said represented a “serious threat” to aviation safety. In recent weeks, one aircraft landed on the wrong runway after being forced to return to the airport following a technical error, and others have reported false alarms tied to software installed in new planes delivered last year.

 

Vietjet is expected to remain under supervision until Jan. 15, when the regulator will decide whether the airline should be allowed to resume adding flights. A Vietjet spokesperson said the company was coordinating with authorities to ensure the “highest level of safety” in its operations.

 

Meanwhile, AirAsia also faces headwinds from rising fuel costs and overcapacity across its network. All units except Malaysia reported operating losses in the third quarter, when net operating profit fell two-thirds due to higher financing costs, signaling the “start of tough times ahead,” according to Raymond Yap of CIMB Research.

 

AirAsia also suffered a setback to plans for Chinese expansion. In August, the carrier aborted a project to enter the market with a state-backed Chinese partner, when bilateral relations soured in the wake of a new government in Malaysia.

 

Fernandes this week admitted that the company needs to focus on making its existing franchise profitable before looking for new partnerships.  “AirAsia will not be opening up any more new airlines for the next three years,” he tweeted on Jan. 2, saying the Vietnam joint venture would be the last until units in Indonesia and Philippines return profits.

 

Vietnam may now be key to keeping the carrier’s momentum in the region going, but success is far from guaranteed.

 

The country has been on AirAsia’s radar since 2005, just four years after the airline’s founding. The carrier initially offered to support Vietnam’s Pacific Airlines, the predecessor to Jetstar Pacific, but lost out to Qantas.

 

Its first serious attempt to break into the market was made in 2007 through a joint venture with Vietnam Shipbuilding Industry Corporation, or Vinashin, in which AirAsia had a 30% stake. Reports in Vietnamese media suggested the partnership failed over government reluctance to license new airlines, especially those with foreign investors.

 

Three years later, in 2010, it tried to tie up with Vietjet. That partnership also fizzled, partly because of strict regulations imposed by the socialist government.

 

Barely a year later, Vietjet took off on its own. Under 48-year old Thao, whose other interests span real estate, banking and industry, the budget carrier has grown from one aircraft and two domestic routes in 2011 to more than 100 routes, about two-thirds of which are international. According to Vietjet’s last annual report, Thao and her family still control at least 45% of the airline.

 

AirAsia set to meet its match in Vietnam’s Vietjet (Part II)

Source: https://asia.nikkei.com/Business/Company-in-focus/AirAsia-set-to-meet-its-match-in-Vietnam-s-Vietjet?fbclid=IwAR0hGs58GVJxBWteuUmtfWeT-4zksuIMAhi9jaH-XYRKxFiNVUQxOdoPfnY

WORD BANK:

budget airline/carrier /ˈbʌdʒ.ɪt ˈeə.laɪn/ ˈkær.i.ər/ (n): hãng hàng không giá rẻ

meet one’s match (idiom): gặp phải đối thủ (xứng tầm)

snap up /snæp/ (v): chụp giật

imitate /ˈɪm.ɪ.teɪt/ [C1] (v): bắt chước

top /tɒp/ (v): làm tốt hơn

brash /bræʃ/ (adj): quá tự tin

former /ˈfɔː.mər/ [B1] (adj): cựu

high-flying /ˌhaɪˈflaɪ.ɪŋ/ (adj): cực kỳ thành đạt

deployment /dɪˈplɔɪ.mənt/ (n): sự triển khai

penetration /ˌpen.ɪˈtreɪ.ʃən/ (n): sự thâm nhập

seal /siːl/ (v): đóng dấu, đánh dấu

strike a deal (phrase): đạt được thỏa thuận

joint venture /dʒɔɪnt ˈven.tʃər/ (n): công ty liên doanh

vie /vaɪ/ (v): cạnh tranh

affiliate /əˈfɪl.i.eɪt/ (n): chi nhánh

price-conscious /ˈpraɪsˌkɒn.ʃəs/ (business terms): có cùng mức giá

savvy /ˈsæv.i/ (adj – informal): thông thái, khôn ngoan

arguably /ˈɑːɡ.ju.ə.bli/ (adv): được cho là

pose challenge to sb/sth (phrase): gây ra thách thức cho ai/cái gì

compound growth rate (business terms): tỷ lệ tăng trưởng gộp (qua nhiều năm)

list (v): niêm yết (trên sàn chứng khoán)

market capitalization / market cap (business terms): giá trị vốn hóa thị trường

dominate /ˈdɒm.ɪ.neɪt/ [B2] (v): thống trị

halt /hɒlt/ (v): tạm dừng

supervision /ˌsuː.pəˈvɪʒ.ən/ [C1] (n): sự giám sát

headwind /ˈhed.wɪnd/ (n): thách thức

overcapacity /ˌəʊvəkəˈpæsəti/ (n): dư thừa

across /əˈkrɒs/ (pre): trên toàn bộ

setback /ˈset.bæk/ [C1] (n): bước lùi

abort /əˈbɔːt/ (v): hủy bỏ

bilateral /ˌbaɪˈlæt.ər.əl/ (adj): song phương

sour /saʊər/ (v): (mối quan hệ) trở nên tồi tệ

in the wake of (pre): trước sự trỗi dậy của

franchise /ˈfræn.tʃaɪz/ (n): nhượng quyền thương mại

momentum /məˈmen.təm/ [C2] (n): đà

initial /ɪˈnɪʃ.əl/ [B2] (adj): ban đầu

predecessor /ˈpriː.dɪˌses.ər/ [C2] (n): tiền thân

reluctance /rɪˈlʌk.təns/ (n): sự miễn cưỡng

fizzle /ˈfɪz.əl/ (v): xì hơi / dần thất bại, dần kết thúc

impose /ɪmˈpəʊz/ [C1] (v): áp đặt


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