Airlines scramble to mitigate losses

12:00 | 19/02/2020
With the coronavirus (COVID-19)  epidemic causing huge losses to the aviation industry around the world, Vietnam’s airlines are exploring different solutions, including opening new routes, to reduce the impact and dependence on the huge Chinese market.
airlines scramble to mitigate losses
New routes are opening up to destinations such as Australia and Eastern Europe, Photo: Le Toan

Last week, Vietjet officially opened three new routes to India, making a total of five direct routes connecting Vietnam’s largest cities – Hanoi, Ho Chi Minh City, and Danang – with the Indian cities of New Delhi and Mumbai. India, one of the world’s largest countries, has a population of 1.3 billion people which is projected to surpass China by 2027. The routes will be in operation from May.

Like Vietjet, Bamboo Airways is also looking to open new routes, but with a focus on the European market. 2.2 million people travelled from Europe to Vietnam by air in 2019, accounting for 15 per cent of the country’s total international visitors.

Early this month, Bamboo was granted a licence by the Vietnam Aviation Department (VAD) to operate a direct flight from Hanoi to Prague in the Czech Republic. The airline’s leader said the first flight on this route is expected to operate on March 29, with a frequency of two flights per week, and will continue to increase depending on the needs of passengers.

The airline also confirmed that it is soon introducing a direct flight from Vietnam to Munich and in early May the airline will start flying to Melbourne.

In addition, Bamboo Airways are planning to expand even further in the near future, with routes connecting Vietnam with Tokyo and Osaka, as well as Israel.

The coronavirus has spread to nearly thirty territories around the world, forcing around 50 airlines to suspend flights to mainland China, Macau, and Hong Kong. The situation has also had a considerable negative effect on Vietnam’s aviation industry.

Accounting for 10 per cent of Vietnam Airlines’ routes, the suspension has had a direct impact on 70,000 tourists travelling between the two countries.

On February 13, Vietnam Airlines said that it was losing up to VND250 billion ($10.8 million) per week in revenue due to the coronavirus. “Since late January, the airline’s passengers on domestic routes have also fallen by 20-30 per cent,” Vietnam Airlines CEO Duong Chi Thanh told VIR.

According to the VAD, three of the biggest airlines (Vietnam Airlines, Jetstar Pacific, and Vietjet) operate 72 regular routes to 48 destinations in China (with a frequency of 401 flights per week) from Hanoi, Ho Chi Minh City, Danang, Cam Ranh, and Phu Quoc.

China, where the COVID-19 epidemic has killed more than 1,300 people, is Vietnam’s largest source of foreign tourists and biggest trading partner. In 2019, the number of passengers travelling between the two countries was around 7.5 million, including 4.6 million carried by Vietnamese airlines.

On February 1, the VAD cancelled all flight licences and stopped granting new ones for routes between Vietnam and China. New licences will only be granted subject to approval from the prime minister, and as of February 11, visas will not be issued to anyone who has visited mainland China within 14 days prior to their arrival in Vietnam.

“In suspending the exploitation of the Chinese market, Vietnamese airlines will lose revenue from an average of 400,000 passengers per month,” VAD director-general Dinh Viet Thang said. “The initial damage to Vietnam’s airlines due to stopping routes to China has been VND10 trillion ($430 billion), a figure which will increase if the epidemic situation does not improve,” he added.

Thang also stated that the incident has had a negative impact on the revenues of Airports Corporation of Vietnam and Vietnam Air Traffic Management Corporation due to the blow of losing 640 regular and irregular flights per week. “It will cause a domino effect on supporting aviation enterprises which provide food, duty free goods, and souvenirs,” Thang added.

Assessing the resilience of the aviation industry, a Vietnam Airlines representative said that judging from the experience of the 2003 SARS epidemic, the tourism market will take at least two months to stabilise after the epidemic is over.

In order to support and facilitate airlines, the VAD has proposed that the Ministry of Transport ask the prime minister for permission to reduce the price of air services managed by the state.

The department is also encouraging airlines and aviation service providers to extend the payment schedule and actively discuss and negotiate the adjustment of service rates.

So far, the VAD has released three potential scenarios for the aviation market, depending on when the epidemic is under control.

In 2003, the SARS outbreak cost Asia-Pacific carriers $6 billion in revenue. North American airlines lost $1 billion, while European carriers largely escaped unscathed. It took nine months before international passenger traffic returned to normal. During the outbreak, the World Health Organization issued its first emergency travel advice about the illness in mid-March, nearly five months after the first reported cases began to emerge. The agency lifted travel advisories against Hong Kong and Beijing in May and June of that year, once the outbreak had been contained in those hubs. Most flight cancellations during SARS lasted roughly two months.

By Phuong Hao

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