2023 The ability of Vietnamese airlines to cut losses is still fragile

DNHN - Dr. Can Van Luc stated at the Seminar "Opening the Market Mechanism and Supporting Vietnamese Aviation" on the afternoon of February 24 that despite facing numerous opportunities, it is still possible for Vietnamese airlines to reduce losses in 2023.

According to Dr. Can Van Luc, the Chief Economist of BIDV and a member of the National Monetary and Financial Policy Advisory Council, the economic outlook for Vietnam in 2023 is expected to remain positive (forecast at 6). -6.5% (less than 8.02% in 2022, but still 2% above the global average). However, inflationary pressures will continue to rise until the end of the first quarter of 2023, and the average CPI for the entire year is anticipated to be between 4 and 4.5 percent (within the set target). Vietnam ranks third in the world in terms of population. However, only five airlines are operating in the ASEAN region (currently home to 100 million people). Compared to other nations in the region, the market size is substantial, but there are fewer airlines (such as Thailand with more than 70 million people with 14 airlines; the Philippines with more than 100 million people with 10 airlines). In addition, the per capita GDP is rising and people's living standards are rising; the middle class is expanding rapidly.

According to experts, the aviation industry in Vietnam has a positive correlation with GDP per capita growth (a 1% increase in GDP will result in a 1.5-2% increase in the aviation industry). Higher per capita income growth (approximately USD 4,110/person/year in 2022 and projected to increase by 6-7% from 2023 to 2030) will stimulate air travel demand, according to Luc.

According to the Chief Economist of BIDV, FDI inflows have continued to increase, boosting the demand for business and leisure travel as well as the international goods movement.

In the context of trade and economic prospects, it is anticipated that registered capital in Vietnam will reach approximately 29-30 billion USD in 2023, an increase of 4-8%, while realized capital will reach approximately 24-25 billion USD, an increase of 5-10%. Global investment continues to face numerous obstacles.

"The outlook for FDI inflows into Vietnam in the coming years remains optimistic. In the coming years, it is anticipated that the demand for air transportation will continue to recover and increase due to Vietnam's burgeoning status as a global hub. newspaper.

However, Vietnamese aviation companies face numerous risks and obstacles.

Concerning the risk of epidemics, the aviation industry in Vietnam is extremely sensitive to crises and epidemics. Even though the current epidemic is under control on a global scale, this does not rule out a resurgence or the emergence of new diseases, the severity of which would have a significant impact on the aviation industry. go out.

Concerning the risk of an economic downturn, the global economy is projected to experience low growth (about 2%) and high inflation (5.2%) in 2023. Some major economies are at risk of entering a mild and brief recession, which will have an impact on air travel demand and the transportation of passengers and cargo. However, it is anticipated that the global economy will regain its growth momentum by 2024 (increasing by 2.7% to 3%), and inflation will continue to decline (approximately 3.5% in 2024).

Regarding the problem of overcrowded airports, Mr. Luc explains that the airport infrastructure is currently overloaded when the total designed capacity of 21 airports reaches 96 million passengers per year; the current number of passengers has nearly surpassed the design capacity.

In particular, Vietnamese aviation enterprises are facing competitive pressure. The trend of liberalizing the aviation industry, exemplified by the ASEAN Open Sky Agreement, creates a great deal of opportunity, but also increases the competitive pressure from international corporations, as airlines in Vietnam gradually lose government protection.

Although foreign FDI enterprises are only permitted to own up to 30% of aviation companies at present, the ASEAN open sky policy enables airlines to fly freely throughout all ASEAN member states at once. The unified air transport market will generate greater competitive pressure than national airlines. In this regard, it is estimated that the risk of competition in the aviation industry is quite high.

In addition, even though gasoline prices have decreased significantly since their peak in the middle of 2022, the forecast remains high with unpredictable and volatile movements and large fluctuations. In 2022, Brent oil and Jet gasoline prices increased abnormally, negatively impacting the operations of aviation businesses. According to Corrine Png's (2019) estimation, Vietnam Airlines' profit could decrease by 6% if the price of jet fuel increases by 1%.

"As a result of the aforementioned strengths, risks, and challenges, it is anticipated that Vietnam's aviation industry will be one of the fastest-growing industries in 2023. Mr. Luc predicts that the ability of major Vietnamese airlines such as Vietnam Airlines, Vietjet, etc. Bamboo Airways to reduce losses is still quite precarious, as fuel prices and interest rates remain high, even though the ability to recover will be close to pre-epidemic levels by the end of 2023.

Mr. Luc stated that the government has submitted to the National Assembly Standing Committee for approval a proposal to continue reducing environmental protection taxes on gasoline, oil, and grease from January 1, 2023, to January 1, 2023. The Ministry of Industry and Trade is proposing to adjust the time for petrol and oil price management (reducing from 10 days to 7 days and mandating every Thursday, excluding public holidays) so that petrol prices are more closely aligned with global developments in oil prices. Simultaneously, the Ministry of Finance proposes delaying several taxes, land rents, etc. in 2023, with a total proposed tax extension amount of approximately VND 110,000 billion (equivalent to an opportunity cost of approximately VND 3,200 billion).

To support Vietnamese aviation enterprises, Mr. Luc suggested: Maintaining the policy of reducing land and water surface rents; tax deferrals; Reducing certain airport service fees as in 2022. The government and the Ministry of Transport can permit reasonable reductions, maintain harmony, collaborate to overcome obstacles, and cultivate revenue.

"Because the Vietnamese aviation market is becoming increasingly competitive and international integration is increasing, the use of administrative measures such as imposing price ceilings, floor prices, or inserting price and fee regulations into the Law on Correcting Prices is problematic. Change must be carefully considered, with administrative intervention in this field kept to a minimum. "As a result, the aviation industry must become more transparent and professional," advised Luc.

Hoai Anh