Vietnam airlines plan fleet boom as roads and rail fail

Reuters

* VietJet Air plans IPO, overseas routes, 3 JVs

* Vietnam Airlines to boost fleet by 28 pct by 2015

* Location, tourism spur Vietnam air travel demand

By Ho Binh Minh

HANOI, Oct 21 (Reuters) - Vietnam's fledgling airlineindustry is poised for a boom as local competition heats up withfleet expansions, new routes and planned share offers that areset to make it one of the world's three fastest growing markets.

Even as the local economy chugs along at about 5 percentgrowth, its slowest pace in 13 years, demand for domestic airtravel is growing by double digits. That is translating into asurprisingly robust new source of business for Boeing Co,Airbus and regional aircraft makers such as MitsubishiAircraft Corp, Bombardier Inc and Embraer SA.

The International Air Transport Association expects Vietnamto become the world's third-fastest growing market forinternational passengers and freight next year, andsecond-fastest for domestic passengers. Vietnam's AviationDepartment expects 15 percent growth in domestic passengers thisyear, more than double last year's 7 percent rise.

Though starting from a low base, Vietnam's carriers willboost their fleets in the next few years, double or triplingthem to serve a domestic market of 90 million people and touristarrivals growing on average 20 percent annually.

VietJet Aviation Joint Stock Co, Vietnam's first privateairline, agreed last month to a provisional order for up to 92Airbus jets worth $9 billion at list prices.

The low-cost carrier is aiming for a stock market listing ineither Hong Kong or Singapore in 2015 to fund the expansion,which would start with flights to Tokyo, Beijing, Singapore,Kuala Lumpur and South Korea, then eventually, China, Russia andAustralia and beyond, Managing Director Luu Duc Khanh said.

"Further it could be the United States, where 4 millionpeople of Vietnamese origin live. They're waiting for VietJetanxiously," he told Reuters in an interview.

VietJet plans to double its fleet by 2015 to 20 jets, and isspeeding up work to get three joint ventures in the air,including one with an undisclosed carrier in Myanmar and anotheragreed with Thailand's KanAir, to operate in early 2014.

SHAKEUP FOR STATE CARRIER

VietJet's bold expansion after less than two years inbusiness could raise the stakes not only at home but inSoutheast Asia's fast-growing low-cost market, dominated byMalaysia's AirAsia Bhd and Indonesia's Lion Air.

Those ambitious plans may have shaken state-run flag carrierVietnam Airlines (VNA) into expediting its long-awaited initialpublic offering and fleet expansion.

VNA dominates the local market and will increase its fleetby 28 percent to 101 aircraft by 2015. It has been preparing foran IPO in the second quarter of 2014.

"The project is right on schedule," said its spokesman, LeTruong Giang.

Its fleet includes both Airbus and Boeing jets and it hasordered the Boeing 787 Dreamliner and the Airbus A350. Accordingto Boeing, VNA has existing orders for eight 787s and 11 morethrough leasing companies.

The airline also has its hand in the low-cost market througha stake in JetStar Pacific, a joint venture with Australia'sQantas Airways. JetStar plans to more than triple itsfleet of five Airbus A320s to 16 in the next few years, aspokesman said.

The airlines and industry experts say the growth potentialcomes mainly from Vietnam's topography and what Khanh of VietJetcalled a "fortune location".

Vietnam is 1,650 kilometres (1,025 miles) in length, itsbiggest cities and tourist resorts are far apart and it has poorroad and rail infrastructure.

It is also within a few hours of Japan, South Korea, HongKong, Thailand and China and tourist arrivals are on the up,with 5.5 million in the first nine months of the year, a 10percent rise from the same period in 2012.

Khanh said expansion would be gradual as the carrier takesdelivery of five to 10 Airbus jets each year until 2022.

"It's insufficient," Khanh said.

VietJet's joint-venture plans were therefore a smart move,said Timothy Ross, an air transport analyst at Credit Suisse inSingapore.

"I can't imagine they have much on their balance sheet... soin terms of building a new business it's far better to give awaysome of the potential upside and invest less," he said.

JetStar had not been profitable and was likely to struggleas competition increased, Ross said, while VNA had not doneitself any favours delaying privatisation.

"We should have seen the Vietnam Airlines IPO 3-5 years ago,but it sat on its hands," he said. "Competition in the airlineindustry is inevitable."

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