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Bao Nhu
The domestic airline market’s stunning sales figures in the first six months of 2022 are great news for local airlines, including Vietnam Airlines.
Positive news
Two days before the 2022 Annual General Meeting, Vietnam Airlines’ shareholders received some positive news. According to the announcements of the Civil Aviation Authority of Vietnam (CAAV), the Vietnamese domestic aviation market currently has the fastest recovery rate in the world, with a growth of 123% compared to the same period in 2019. This result comes from an analysis conducted by Airbus and IATA for global flights recorded by Flightradar 24 and Airbus Estimate.
The domestic air market has had a breakthrough during the first six months of 2022. The total number of passengers traveling through airports reached 40.7 million, up 56.8% from the same period in 2021. The number of international passengers reached 1.8 million, an increase of 904.6%; while the figure for domestic passengers was 38.9 million, an increase of 52.6%.
Mr. Dinh Viet Thang, General Director of CAAV, revealed that in 2022, it was estimated that airports across the country would welcome about 87.8 million passengers, an increase of 190% compared to 2021. The number of international passengers is expected to reach 5 million, up by 844%; while the figure for domestic passengers is predicted at 82.8 million, an increase of 178.4%. “With this growth within the domestic market, it is estimated that the total volume of our entire flight network will soon recover to its pre-pandemic level,” said Mr. Thang. This would be a huge boost to help Vietnamese airlines to survive and recover after the pandemic, despite challenges such as sudden spikes in fuel prices, and economic and political instabilities around the world.
All Vietnamese airlines, including Vietnam Airlines, went through a particularly rough year, with all regular departing/arriving international routes to Vietnam frozen throughout 2021. In the domestic market, pandemic outbreaks took place during two pivotal seasons, the Tet holidays and the summer vacations. Many cities and provinces had to implement social distancing policies, causing the domestic market to plummet to just 14.6 million passengers in 2021, a decrease of 61% compared to 2019 and 47% lower than mid-year projections. Flight fares for domestic tickets also dropped by 34% compared to the same period the year before, causing large impacts on airlines’ expenses.
To adapt to this vicious circle, Vietnam Airlines implemented operational solutions for the pandemic and current market situation. The national airline also took every opportunity to maximize revenues, cut down costs to a minimum, extend debt liquidation progress (the total extended amount of debt in 2021 reached VND 12,851 billion), use short-term credit limits flexibly, and push for restructuring of domestic and international loans (amounting to VND 3,203 billion) to offset losses, maintain liquidity, and ensure a balanced cash flow for maintaining business activities. In addition, Vietnam Airlines has been quick to adapt to market changes, focusing on logistic business opportunities when passenger flights were difficult. In 2021, the three subsidiaries of Vietnam Airlines – Noi Bai Cargo Terminal Services JSC, Tan Son Nhat Cargo Terminal Services JSC, and Tan Son Nhat Cargo Services and Forwarding Co., LTD – made VND 1,000 billion in profit before taxes alone.
In the third quarter of 2021, Vietnam Airlines also signed a recapitalization agreement worth VND 4,000 billion and increased its funds from shares issuance to VND 7,961 billion. This helped Vietnam Airlines gain important financial backings to partially settle overdue debts and improve reserves, which supplemented their equity, guaranteeing their listing on HOSE.
Boosting restructuring progress
As the domestic market has shown clear signs of recovery and important international routes are being restored in 2022, Vietnam Airlines strives to achieve a consolidated revenue of VND 59,907 billion, an increase of 201% over 2021. That said, due to skyrocketing Jet A1 fuel prices, the recovery rate for the international market faces many risks. Vietnam Airlines faces risks of high losses, reduced cash flow, and budget deficits.
Mr. Dang Ngoc Hoa, Chairman of the Board of Management, Vietnam Airlines, said: “During the second half of 2022, Vietnam Airlines will continue to operate dynamic business activities following market trends. The company will also negotiate for lower prices and implement better cost management, as well as asset restructuring solutions to improve its earnings, cash flow, and capital, to maximize the profits from business activities, manage liquidity, and maintain our combined equity above the line.”
Vietnam Airlines will focus on three major solution categories with high chances of success: synchronizing all solutions to maximize the recovery rate and improve business activities, thereby reducing losses in the passenger transportation sector as the market has not fully recovered (2022-2023), and moving on to more earnings in upcoming years; restructuring assets and financial investments to improve earnings and cash flow through selling or renting old aircraft, divestments, capital transfers for some financial investments between 2022 and 2024; issuing more shares to increase equity, planned for implementation in the 2023-2024 period.
“These solutions will be implemented after Vietnam Airlines’ scheme for restructuring in the 2021-2025 period, as well as plans for divestments and capital issues, have been approved by authorities, Government shareholders, and the General Meeting of Shareholders” announced Mr. Le Hong Ha, Vietnam Airlines’ CEO.
