Summary:
- Vietnam Airlines was impacted last year by Jetstar's launch of services on the Melbourne and Sydney to Ho Chi Minh routes as yields initially declined;
- However, yields have recovered this year and Vietnam Airlines is encouraged by the overall growth in the Australia-Vietnam market;
- Vietnam Airlines has succeeded at growing sixth freedom traffic from Australia, leading to overall growth in its Australia traffic despite intensifying competition.
The May-2017 launch of four weekly Sydney-Ho Chi Minh flights and three weekly Melbourne-Ho Chi Minh flights by Jetstar and the Mar-2017 launch of three weekly Sydney-Hanoi flights by Vietnam Airlines resulted in an over 80% spike in capacity in the Australia-Vietnam market. Vietnam Airlines was previously the only nonstop competitor, operating one daily flight from both Melbourne and Sydney to Ho Chi Minh. Vietnam Airlines continues to operate 17 weekly flights in the Australia-Vietnam market, while Jetstar adjusted its schedule earlier this year and now operates three weekly Sydney-Ho Chi Minh flights and two to four weekly Melbourne-Ho Chi Minh flights depending on the season.
Vietnam Airlines CEO Duong Tri Thanh told CAPA TV, at the 4-Jun-2018 IATA AGM in Sydney, that yields in the Australia-Vietnam market declined after Jetstar entered but have since recovered. "Although for the first few months yield was pressured down it's now getting back quite strongly," he said.
Mr Duong pointed out that as an LCC Jetstar caters to a different segment of the market. He added, the Jetstar service has had overall positive impact on the Australia-Vietnam market as it "has brought more awareness" of Vietnam as a destination, leading to an increase in traffic.
Mr Duong said the performance of Vietnam Airlines' new Sydney-Hanoi route has been "quite positive" in the first 15 months. While Vietnam Airlines has added capacity to Australia because of the Sydney-Hanoi launch it is now carrying more sixth freedom traffic beyond Vietnam.
Vietnam Airlines has started competing aggressively on the kangaroo route from Melbourne and Sydney to Frankfurt, London and Paris. It also offers regional connections within Indochina and to North Asia.
"Australia-Vietnam is a very important market for us. It's not only Vietnam-Australia but we connect people through Vietnam into Laos and Cambodia," Mr Duong told CAPA TV. "And we have been very successful in bridging people in the kangaroo route through Hanoi and Ho Chi Minh. We are connecting people as well to China and North Asia."
Vietnam Airlines' traffic to and from Australia increased by 7% in 2017 to 348,000 passengers, according to BITRE data. The airline flew 38,000 passengers on the new Sydney-Hanoi route, while its traffic on the Sydney-Ho Chi Minh and Melbourne-Ho Chi Minh routes dropped slightly. Its average load factor in the Australia market in 2017 was 75%.
Total Australia-Vietnam traffic increased by nearly 50% in 2017 when factoring in the 128,000 passengers carried by Jetstar in the first eight months of its new services. Jetstar had a higher average load factor on Australia-Vietnam flights of 83%; it is typical for an LCC to have a higher load factor than a full-service network airline.
In 2017, Vietnam reported a 16% increase in Australian visitors to 370,000, while Australia reported a 34% increase in Vietnamese visitors to 94,000. The fact Australia-Vietnam traffic grew at a faster clip than visitor numbers indicates there was significant growth in sixth freedom traffic albeit from a low base.
All of Vietnam Airlines' Australia flights are now operated with 787-9s. In 2017, Vietnam Airlines phased out its 777 fleet, which have traditionally been used on Australia routes. Mr Doung said the 787 has "very much been welcomed" by the Australian market and has helped the airline improve its performance in Melbourne and Sydney.
Watch our full interview with Vietnam Airlines CEO Duong Tri Thanh below: