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Vietnam’s aviation industry to recover?

Vietnam’s aviation industry to recover?

Friday 19, 08 2022
Vietnam’s airline industry's profit growth will be better at the start of 2023 than in 2022 but will not return to pre-COVID-19 levels until the end of 2023.

Vietnam aviation in the first half of 2022

According to the Civil Aviation Administration of Vietnam, in the first 6 months of 2022, the total number of passengers the aviation industry served reached 23.3 million, up 74.2% over the same period in 2021.

The domestic market was 20.8 million visitors, an increase of 58.4% compared to the first 6 months of 2021 and an increase of 12% over the same period in 2019.

Vietnam’s aviation industry

In the first 7 months of 2022, Vietnam’s aviation industry received 35.3 million customers, which increased sharply over the same period in 2021. According to data from the Civil Aviation Authority of Vietnam, in July 2022, the passenger volume in Vietnam’s airports reached nearly 12 million passengers.

Specifically, the volume of passengers on domestic flights reached more than 10.5 million passengers, an explosive increase of 40.3% compared to the peak of the summer months before the pandemic. However, two of the three largest airlines in Vietnam still suffer deep losses.

In the first half of 2022, Vietnam Airlines Group (including Vietnam Airlines, Pacific Airlines, and VASCO) received 9.5 million passengers, up 24.6% compared to the plan reported to the General meeting of shareholders.

A large number of passengers is the main factor helping the Corporation achieve net revenue of more than 18,300 billion VND in the second quarter, 2.8 times higher than in the same period. Gross loss improved and decreased by nearly 9 times over the same period, equivalent to a loss of 377 billion VND.

However, because financial expenses increased sharply by 172% to 1,100 billion VND, most of the loss was due to exchange rate difference (841 billion VND) and loan interest (262 billion VND). At the same time, selling expenses doubled to 659 billion VND. Vietnam Airlines saw a net loss of nearly 2,600 billion VND in the second quarter, reducing a loss of nearly 2,000 billion VND over the same period.

As a result, in the first 6 months of the year, Vietnam Airlines recorded net revenue of nearly 30,000 billion VND, a sharp increase of 114% but reported a loss of nearly 5,200 billion VND.

As for Bamboo Airways, the company reported that its revenue in the second quarter of 2022 increased by 50% compared to the first quarter and 30% higher than planned at the beginning of the year. However, according to the consolidated financial statements of FLC Group, Bamboo Airways suffered a loss of nearly 955 billion VND and a further loss of 454 billion VND in the first half of 2022.

Bamboo Airways

Another aviation company, VietJet Air, recorded a net profit of more than 180 billion VND in the second quarter, higher than the 6 billion VND profit in the same period last year. However, that profit is lower than expected because high fuel costs restrained the recovery momentum. The revenue of nearly 2,500 billion VND from the sale and leaseback of aircraft (S&LB) also supports the core business. Overall, the first 6 months' net profit increased by 242.1% over the same period, reaching 424 billion VND.

Full recovery in 2023?

When assessing the potential of Vietnam’s aviation industry in the latter half of 2022, analysts believe that the industry's profit growth will be higher than in the first half of the year, based on three main reasons.

Firstly, domestic travel demand tends to recover strongly.

According to data from the Civil Aviation Administration of Vietnam, the number of passengers through Vietnam's airports reached nearly 12 million in July 2022. Specifically, the number of passengers on domestic flights reached more than 10.5 million passengers, an explosive increase of 40.3% compared to the peak of the summer months before the pandemic (July 2019) and an increase of nearly 6% compared with the previous month.

Civil Aviation Administration of Vietnam

In 2022, the number of domestic passengers is estimated to reach 89 million, an increase of 20% compared to the pre-pandemic period in 2019.

Secondly, international arrivals are estimated to increase gradually towards the end of the year. In the first months of 2022, international visitors only reached over 10% of the number recorded pre-pandemic with Vietnam's relaxed regulations, no longer controlled borders or isolated, and tested for Covid-19.

Finally, increased demand helps airlines pass on fuel costs to customers, especially during the holidays. If oil prices are normalized, it could help ease pressure on airlines' profit margins this year.

However, according to experts, profit growth has not been strong because international visitors are the main source of profit for all companies in the industry, such as airports, airline services, and airlines.

The resumption of international flight routes is estimated to take place slowly this year, as key markets such as China, South Korea, and Japan are reopening at different paces. Therefore, the profit of the whole industry is estimated to increase more strongly from 2023 onwards.

Vietnam’s airline industry's profit growth will grow better at the start of 2023 than in 2022 but will not return to pre-COVID-19 levels until the end of 2023.

The volume of domestic tourists in Vietnam is forecast to continue to rise, reaching 98 million visitors, up 10%. International visitors will continue to increase sharply, assuming China will fully open up in 2023. Then, the number of international visitors will fully recover by the end of 2023 compared to the end of 2019.

However, there are still potential risks in 2023 as concerns about airlines restarting routes to international markets in the context of high oil prices, fierce market competition, and possibly a decrease in demand due to slowing global economic growth affecting non-essential consumption behavior.

 

Source: vneconomy

Compiled by VietnamCredit

Tags: Vietnam industries, aviation industry, Vietnam aviation, aviation companies, industry recovery, travel demand, Vietnam Airlines, Vietjet Air, Bamboo Airways

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