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AirAsia’s new JV in Vietnam adds to fierce competition
Having sought partnerships to enter the Vietnamese air market for a decade, AirAsia’s latest link up adds fuel to competitive pressures in Vietnam’s low-cost carrier sector
Nguyen Tuong Thuy 10 Dec 2018

Vietnam is the latest country to lure AirAsia, Southeast Asia's largest low-cost carrier.

AirAsia, which has been making persistent efforts to build a pan-Asian budget airline, is poised to launch in early 2019 an airline in Vietnam with a local partner in the country. This development allows AirAsia access to the fastest growing air travel market in the region and one of the last remaining countries with a large population the Malaysia-based carrier is not in.

The low-cost carrier (LCC) and Hanoi-based Thien Minh Group agreed on December 6 to invest in aircraft to build a fleet for the new airline. AirAsia CEO Tony Fernandes and Thien Minh chairman Tran Trong Kien signed the agreement in front of Vietnam's Deputy Prime Minister Vu Duc Dam during a Vietnam tourism summit in the Vietnamese capital.

Actually, AirAsia announced the joint venture way back in 2017. Fernandes said on December 6 that his firm was "bullish about Vietnam then and remains incredibly bullish about serving one of the most dynamic, fastest-growing economies in Asia". Thien Minh's Kien said that the fleet will mainly include Airbus A320s and A321s, both short- to medium-range, narrow-body aircraft.

Originally announced in April 2017, the AirAsia-Thien Minh Group joint venture had planned to start flights in April 2018, growing its fleet to 30 aircraft within three years. The announcement projected AirAsia to take a 30% stake in existing Hai Au Aviation, a Thien Minh member, which was to be relaunched as a low-cost carrier, subject to regulatory approvals. Gumin, another local firm, was to hold the remaining 70% of Hai Au's shares, which would see the general aviation operator's capitalization raised to around US$44 million.

Thien Minh Group currently offers superior tourism using its seaplanes linking Hanoi and Ha Long Bay, which is very popular among international tourists, as well as cruises traveling the Mekong Delta, southern Vietnam. The private group operates various hotels and resorts in Cambodia, Laos and Vietnam, with the number of new facilities increasing regularly.

The new joint operation is set to focus on routes connecting key and populous cities, including Hanoi, Danang and Ho Chi Minh City, also flying to Southeast Asia, China, South Korea and Japan from Ho Chi Minh City, Hanoi and Danang. This operation would represent major competition for Vietjet, Vietnam's leading low-cost carrier, whose CEO, Nguyen Thi Phuong Thao, was recently estimated by Forbes to be the richest woman in Vietnam, approaching a net worth of around US$2.6 billion.

She launched Vietjet in 2011. The airline leads the domestic market with a 45% share, operating 385 flights daily within Vietnam and to Japan, Hong Kong, South Korea, Taiwan, Singapore, mainland China, Thailand, Myanmar, and Malaysia. It is expanding on the back of strong passenger growth domestically, where low-cost flying is the preferred option for many people.

The Vietnamese aviation market has averaged 17.4% growth over the past decade, far higher than the 7.9% rate for the Asia-Pacific region, according to the International Air Transport Association. AirAsia has been seeking a local partner for more than 10 years and it had earlier agreed to team up with Vietjet, but the agreement came to an end in 2010 without a maiden flight.

Now the newest AirAsia deal comes as another Vietnamese carrier, Bamboo Airways, an ambitious member of the FLC Group, is slated to launch services on December 29 connecting Hanoi and the central coastal city of Quy Nhon, home to an FLC resort complex. FLC Group chairman is Trinh Van Quyet, one of the country's richest men, whose property empire includes lush beachside resorts, golf clubs and luxury condos across Vietnam.

Bamboo has already signed up to buy 20 of Boeing's 787 Dreamliners worth US$5.6 billion and committed a further US$3.2 billion to buy 24 Airbus A321neo planes.

In a related development, a governmental decree drafted by the transport ministry to simplify business conditions for potential investors in the aviation sector was sent to Prime Minister Nguyen Xuan Phuc for approval this November. It is expected to enhance aviation services including aviation transport businesses, airports and aviation service supply.

A new point in the draft decree is that the ministry proposed to raise ownership for foreign investors in the field of aviation transport. Foreign-invested enterprises must satisfy the following conditions: foreign ownership will not occupy more than 34% of charter capital; at least one Vietnamese individual or legal entity must hold the largest charter capital. In the case where the Vietnamese person has foreign owned capital that is the largest charter capital amount, the foreign capital contribution shall not exceed 49% of the Vietnamese person's own input.

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