Bamboo Airways brings forward launch as it aims to satisfy growing appetite for international air travel in Vietnam, but could overcapacity be a real threat?

Vietnamese start-up Bamboo Airways has taken delivery of its first aircraft and adjusted its planned launch date as it aims to take advantage of the growing demand for air travel in and out of the country. The Airbus A319 has been acquired from an Irish lessor and will be used to launch flights from 27-Dec-2018, two days earlier than originally intended. An A320 will follow in the next couple of weeks to support its scheduled international operations that will initially link Vietnam to destinations in Japan and South Korea, according to its parent company FLC Group.


Summary:

  • Vietnamese start-up Bamboo Airways has taken delivery of its first aircraft and adjusted its planned launch date;
  • The Airbus A319 has been acquired from an Irish lessor and will be used to launch flights from 27-Dec-2018, two days earlier than originally intended;
  • The start-up aims to take advantage of the growing demand for air travel in and out of the country, but overcapacity is an obvious risk.

Vietnam’s international aviation market has grown at a phenomenal rate in the past three years, driven by a surging tourism industry. Vietnam is on pace to have 38 million international passengers and 16 million visitors in 2018, compared to only 18 million passengers and eight million visitors in 2015. Not surprisingly, the rapid growth has captured the attention of both local and foreign airlines.

It is this growth that has compelled the Vietnamese real estate company FLC Group to establish Bamboo Airways, a hybrid airline that will have a focus on the international market. Bamboo is expected to initially operate some domestic services, followed by regional international services in 2019 and long haul services in 2020 using newly ordered Boeing 787 Dreamliners. However, with just over a week until its proposed launch, it is understood that it has not yet received its air operator’s certificate.

FLC Group is being extremely ambitious, having already placed orders for 44 aircraft (20 787-9s for delivery from 2020 and 24 A321neos for delivery from 2022). Bamboo also plans to operate 20 leased aircraft, with A320 deliveries potentially starting later this year.

It is banking heavily on the international market, including regional services to fast growing Asian source markets and long haul services to Europe and North America. It hopes to differentiate itself and avoid infrastructure constraints by focusing on secondary destinations, including emerging tourist destinations where it owns and is building new resorts.

A recent insight report from CAPA – Centre for Aviation entitled ‘Vietnam international aviation grows 20+%; Vietjet, Bamboo Airways accelerate’ highlights the China and South Korea markets for driving most of Vietnam’s recent international growth. Total scheduled seat capacity between Vietnam and China has grown by 50% over the past two years – from 40,000 one-way seats in Aug-2016 to slightly more than 60,000 seats in Aug-2018.

China is the second largest international market from Vietnam based on seat capacity (after South Korea) and is the largest source market for Vietnam’s fast growing tourism industry. China currently accounts for approximately 15% of Vietnam’s scheduled international seat capacity (the capacity share figure is higher when charters are included), and Chinese visitors accounted for 33% of total visitors to Vietnam in the first seven months of 2018.

Chinese visitor growth has been faster than total visitor growth in the past three years, increasing by 51% in 2016, 49% in 2017 and 34% in 2018. Vietnam has attracted eight million additional annual visitors over the past three years; China has accounted for nearly four million, or half, of the additional visitors.

South Korea has accounted for nearly another three million of the eight million additional visitors since 2015. South Korea is Vietnam’s second largest source market and accounted for 22% of total visitors in the first seven months of 2017. South Korean visitor numbers increased by 36% in 2016 and by a staggering 56% in both 2017 and the first seven months of 2018.

It seems positive, but there is a risk that Vietnam’s international market will have slowed by the time Bamboo and another high profile proposed start-up, AirAsia Vietnam, reach critical mass. It is not realistic to assume Vietnam’s international market will continue to grow at a 20%-plus per annum rate. Infrastructure constraints are a concern – both with airports and tourism infrastructure.

“There is also no guarantee that Vietnam will remain a hot destination among Chinese, Korean or other travellers. Chinese travellers often change their travel preferences practically overnight, resulting in sudden slowdowns or even contractions in certain markets. Political uncertainty is also a risk, and Vietnam’s relations with China – and other countries – could sour,” explains CAPA.

If inbound demand slows, the overall market could quickly become oversupplied. Even with annual visitor number growth slowing to 10% there is a likelihood of overcapacity, given the ambitious expansion plan of Vietnamese airlines. Overambitious start-ups could ultimately drive it over the edge.