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2021 will still be a challenging year for the aviation industry

Monday 04, 01 2021
2020 was the worst year for the aviation industry. What will happen in 2021?
2021 will still be a challenging year for the aviation industry
2020 was seen as the worst year in the history of the global civil aviation industry, by the International Air Transport Association (IATA). It is expected that this industry will lose about USD 118.5 billion in 2020 and USD 38.7 billion in 2021. It is not until the middle of 2022 that the airlines will recover on the scale as in 2019. 
 
According to Mr. Duong Tri Thanh, General Director of Vietnam Airlines, the forecasted damage caused by the COVID-19 pandemic of the Vietnamese airline industry was USD 4 billion in 2020. However, Vietnam's aviation industry is showing a significant recovery at the end of the year, due to complete recovery in domestic routes and stable cargo transportation.
 
As of November 2020, the total number of flights decreased by 23% compared to the same period last year, strongly recovered from a 92% decrease in April 2020. The recovery mainly comes from domestic routes as international routes have not been reopened yet. 
 aviation industry
The most active route is Ho Chi Minh City - Hanoi with 540 flights per week (compared to 371 flights per week before the COVID-19 pandemic) and a quite positive occupancy rate of about 90%. 
 
Cargo transportation was less severely affected by the COVID-19 pandemic and recovered very early. However, combined cargo and passenger flights, which account for half of cargo capacity, have been still affected because international flights have not been operational again. 
 

Next year’s challenges of the aviation industry

Regarding the prospect of the aviation industry, Mirae Asset Securities Vietnam (MASVN) believes that 2021 will continue to be a difficult year. Specifically, the aviation industry has no more room for recovery until international flights are reopened.
 
Currently, the low ticket price helps to push the demand for domestic flights to a higher level than pre-pandemic. However, the possibility of increasing domestic flights will be limited as there is no much room left for decreasing ticket prices. If the airlines continue to cut down on ticket prices, the operation will not bring positive cash flow.
 Next year’s challenges of the aviation industry
The second challenge the aviation needs to face in the next year is the shrinking market, leading to fiercer competition. Currently, all aircraft focus on domestic routes to improve cash flow. Vietjet Air continues to receive 11 new aircraft, increasing the total number of aircraft in operation to 88, along with sale & leaseback activities. This supports window dressing in reports but makes the cash flow and core operations even worse when the market has not been recovered. 
 
Meanwhile, Bamboo Airways reduced two A320 aircraft but received four E195 small aircraft (124 seats), increasing the number of aircraft to 26. There were 3,286 flights in November 2020, increasing by 35% year over year. Vietnam Airlines and Pacific Airlines decreased their operational aircraft compared to May 2020, from 105 to 99 and from 18 to 15, respectively.
 
The number of cheap tickets in one flight has also increased, shown by the ease of ticket purchase even close to the departure date. Besides, alternative modes of transportation such as passenger cars and trains have strong discounts (15 - 30% discount for passenger cars, 50% discount for trains with limited numbers of 6,000 – 14,000 tickets each batch), making competition even fiercer.
 
According to MASVN experts, international flights are likely to be reopened when the COVID-19 pandemic is repelled. The international passenger traffic will begin to recover accordingly. However, the recovery rate would be quite slow due to isolation and quarantine regulations, economic recession, and decreased tourism demands.
 
To overcome the challenges caused by the pandemic, Vietnamese airlines have actively mobilized more capital and reduced costs. The airlines have boosted pre-sale campaigns by focusing on promotions. Especially, Vietjet Air offers an unlimited pre-sale with the economy class Ho Chi Minh City - Hanoi ticket of only VND 85,460 for the entire year of 2021. Vietnam Airlines and Bamboo Airways offer shorter and more limited sale-offs. Recently, Vietnam Airlines has planned of mobilizing VND 8,000 billion from issuing additional shares to existing shareholders (the expected price of VND 10,000 per share) and VND 4,000 billion from concessional loans with an interest rate of 4% p.a. in three years. 
 
Besides, both Vietnam Airlines and Vietjet Air had a policy of sharply reducing cost from the first quarter of 2020. Regarding employee policy, both of the airlines did not apply compulsory layoff. However, Vietnam Airlines' employees stay home without salary; meanwhile, Vietjet strongly cuts down on staff salaries and adjusts salaries to revenue. 
 
Compiled by VietnamCredit

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