As the domestic transport market is growing rapidly and the early stages of restructuring have proven effective, Vietnam Airlines has managed to stabilize its business performance and create a favorable premise for recovery in 2023.
A remarkable recovery
The latest report submitted to the Ministry of Transport by the Civil Aviation Authority of Vietnam (CAAV) in late October 2022 reveals promising signs for a speedy recovery of the domestic aviation market. According to the report, Vietnamese airlines carried a total of 3.5 million passengers in September 2022, of which 2.9 million were on domestic flights. This was 1,679.3% more than in October 2021.
This was also the sixth consecutive month where the domestic transport volume of passengers and cargo experienced growth compared to the same period a year earlier. “After a long pandemic, the pent-up demands for travel and trade were finally released, which gave the domestic aviation market a bigger boost toward recovery than expected. In particular, the North-South routes and flights connecting Hanoi and Ho Chi Minh City with major tourist destinations experienced increased demands,” said Mr. Dinh Viet Thang, Director of the CAAV.
According to Vietnam Airlines’ consolidated financial statements in Q3/2022, the company’s net revenue reached VND 21,156 billion – a 350% increase compared to the same period in the previous year. Although the gross profit margin was only 0.8%, this was the first quarter since 2020 that Vietnam Airlines yielded a gross profit, with profit totaling VND 165 billion. Cumulative revenue in the first nine months of 2022 was VND 51,107 billion, an increase of 173%, while the after-tax loss went down by VND 4,370 billion compared to the first nine months of 2021. With the economy on the mend and Vietnam Airlines taking short- and long-term measures to minimize losses related to Covid-19, the company’s business performance and cash flow quickly improved and grew.
According to a representative from Vietnam Airlines, the company is now aggressively and collectively implementing three complementary solutions to increase profits and equity funding, which are: collectively implementing solutions to recover and improve production and business results, minimizing losses; restructuring assets and investment portfolios to increase income and cash flow (2022-2025); and issuing stocks to increase owner’s equity (2023-2025). These solutions were also included in Vietnam Airlines restructuring plan for the 2021-2025 period, which the holding company submitted to competent authorities.
The overall restructuring of Vietnam Airlines was a necessary undertaking that had to be executed rapidly in order for the company to overcome difficulties, seize opportunities, and achieve significant breakthroughs. While waiting for the plan to be approved, Vietnam Airlines also actively implemented restructuring solutions within its jurisdiction, such as negotiating to extend due payments; liquidating assets (in the first six months of 2022, the company sold two outdated airplanes); accelerating the asset restructuring process (sell, sell and rent planes); and cutting unnecessary costs.
In addition, the fiscal situation of Vietnam Airlines will be markedly improved if the company succeeds in divesting from Pacific Airlines in 2022. Vietnam Airlines expects to reduce accumulative losses by VND 4,000-5,000 billion by divesting from Pacific Airlines and divesting the remaining contributed capital from Cambodia Angkor Air.
Optimism for 2023
According to Assoc. Prof. Tran Dinh Thien, former Director of the Vietnam Institute of Economics, the aviation industry will continue to be the fastest-recovering sector in 2023, and companies with extensive route networks, such as Vietnam Airlines, will have the edge over their competitors.
In addition, even though the international market is experiencing sluggish growth, many experts remain optimistic about the industry’s prospects in 2023. The domestic aviation market will continue to be the highlight, with transport volume predicted to reach 46.7 million passengers, a 2.7% increase from 2022.
Another positive signal for Vietnamese airlines is that negotiations to restore and increase passenger flight frequencies between China and Vietnam are going well, especially after Secretary General Nguyen Phu Trong’s state-level visit to China. The Chinese market currently accounts for 34% of inbound visitors to Vietnam.
According to VNDIRECT Securities Corporation, if China re-opens its border, the international passenger transport volume will rebound quickly and return to pre-pandemic levels by 2024. It will also be a great boost for airlines that have successfully operated in China, such as Vietnam Airlines. “Should the aviation industry tackle the exchange rate problem well, the boost from this market will help the industry take off by 2023,” concluded VNDIRECT.
Mr. Tran Thanh Hien, Chief Accountant and Deputy Head of the Vietnam Airlines Restructuring Committee, said: “The timely and effective implementation of the Restructuring plan for the 2021-2025 period will be one of the decisive factors for the recovery and development of Vietnam’s flag carrier in the next five years”.