Flying High: Vietnam Leads World's Fastest Aviation Recovery

Macroeconomic stability and tourism demand has helped Vietnam's domestic aviation market quickly recover from the pandemic.
June 20, 2022 | 07:04
Flying High: Vietnam Leads World's Fastest Aviation Recovery
Vietnam domestic aviation recorded the fastest recovery in the world. Photo: Thanh Nien

World's fastest recovery

The International Air Transport Association (IATA) has released its latest report on the recovery of the aviation market. Accordingly, Vietnam ranks No. 1 in the list of 25 countries with the fastest recovering domestic aviation markets in the world.

Considering Southeast Asia, Vietnam is far ahead of other countries on the list. For example, Indonesia ranked 8th, Malaysia 9th, the Philippines 13th and Thailand ranked 24th.

Immediately after the reopening of the borders, the country's aviation industry really "took off." According to statistics from the Civil Aviation Authority of Vietnam, the number of passengers through Vietnam's airports in the first 6 months of this year reached 40.7 million passengers, an increase of 56.8% over the same period in 2021. Of these, there are 38.9 million domestic tourists.

Nguyen Quang Trung, Vietnam Airlines' director of Corporate Planning & Development, said that besides the progress of vaccination and pandemic control in the world, the need for travel, travel for work in the two years of the pandemic is one of the important factors, bringing opportunities for a rebound in aviation.

That was clearly demonstrated from January 1 to 24, when Vietnam Airlines (VNA) restored regular flights to 8 countries and territories, recording nearly 70% flight occupancy rate to Vietnam during this period. In the first 5 months of 2022, domestic passengers of the national airline reached 15.6 million passengers, exceeding 3.9% over the same period in 2019.

For Vietnam Airlines Group (including 3 airlines VNA, Pacific Airlines, VASCO), the total number of passengers transported in 5 months reached 6.7 million, equal to the same period in 2019.

"IATA in March forecast the Asia-Pacific international market to recover by 2024. We expect the market to recover by the end of 2023 or mid-2024," said Nguyen Quang Trung.

Difficulty with fuel prices

The growth in passenger numbers is impressive, but airlines have not yet recovered correspondingly. The first-quarter financial statements of all airlines recorded heavy losses, mainly due to high costs.

In 2022, the operating cost of an airline in Vietnam is estimated on an oil price forecast of about US$80/barrel, with provision for devaluation compared to the average price in 2021 of about US$73/barrel.

Vietnam Leads World's Fastest Aviation Recovery
Photo: VNP

However, fuel prices included in the VNA's May cost is US$134.4/barrel, an increase of US$54.4/barrel compared to the plan. Total fuel cost in May increased by about US$25 million.

According to the representative of VNA, although the domestic market recovered quickly, the recovery of international airlines was still limited. This market is vital as it brings more than 60% of revenue for Vietnamese airlines. Consequently, there has been a decrease in average revenue compared to 2019.

The airline also determined that the current financial situation is difficult to improve due to high oil prices, strong competition, and difficulty in network expansion.

“With the current operation, every US$1 increase in fuel prices from now to the end of the year will make the company increase fuel costs to VND 106 billion (US$4.56 million). Fuel cost always accounts for the largest proportion, about 30-40% of production and business costs. Therefore, the airlines at this time are worried that the fuel price shock will cause a loss of profits. VNA hopes the Ministry of Finance will consider reporting to the Government for approval of the plan to apply a 100% environmental tax exemption policy on aviation fuels this year to help airlines recover soon," Nguyen Quang Trung said.

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