Competition Is a Good Way To Grow
Pham Ngoc Minh, President and CEO of Vietnam Airlines, says market positioning will be crucial in a fiercely competitive region.
How is Vietnam Airlines performing?
The airline’s financial performance has been excellent and it is improving year-on-year. We have been very fortunate and we have never made a loss despite the various crises that have hit the industry in recent years. We are making a profit in 2013 too. The figures are even a little bit up on last year. The result should be better than 2012 by about $6–$7 million.
Is the growth in traffic mainly business or leisure travelers?
The majority of our business is leisure traffic. We are not yet seeing the same level of growth in business travel although that sector is growing. And it is worth noting that domestic traffic is growing faster than international traffic at the moment.
Tell us about the IPO and the reasoning behind it.
There is a plan for an IPO for Vietnam Airlines and we are on track. We have completed an enterprise evaluation both domestically and internationally. The board needs to report to the relevant government agency and once that is complete and we have the Prime Minister’s decision we can start the next phase of the IPO.The reasoning behind the strategy is quite simple. The Vietnam government wants to encourage greater transparency in state-owned companies such as Vietnam Airlines and help us survive in a competitive market.
You’re also looking for a strategic partner to assist in making you more competitive?
We are open for discussions! Vietnam Airlines needs to develop into a strong international carrier. A long term strategic partner that could join us in a venture that benefits both parties would be very welcome. It doesn’t have to be a SkyTeam partner. We are looking beyond the alliance for any investor who is interested in our airline and our growth strategy. It doesn’t even have to be another airline. The point is that the investor has the ability to help the airline grow into a more competitive international business. Of course, airline expertise helps but it is more about being a professional partner. They would need to bring new ideas and help address the core values of Vietnam Airlines.
The airline has placed a lot of aircraft orders recently. What is your fleet development strategy?
It’s true, there is an ambitious fleet renewal and expansion program at Vietnam Airlines. We decided to concentrate on a single narrowbody type. We have 50 Airbus A321s and this will grow to 60-plus aircraft. Then there is a small turboprop fleet for those small island and remote airports that we have to serve.
Finally, for widebody aircraft, we decided to be a pioneer. There are Boeing 787s on order and in fact, the airline was the first to ask, negotiate and reach agreement with the Boeing team to upgrade from the 787-8 to the 787-9. The Boeing team was then headed by Mr. Ray Conner who later became the CEO of Boeing Airplane Commercial. Until now, we still think that the conversion of B787-8 into 787-9 was a right decision for Vietnam Airlines.
We have also ordered Airbus A350s because they are slightly larger than the Boeing 787s and we needed the extra capacity. The total widebody fleet will be 19 Boeing 787-9s and 14 Airbus 350s. The first of the aircraft will be delivered in May/June 2015 and our order will be completed by the first quarter 2019. So we will have 33 new aircraft delivered in under three years, which is a very ambitious schedule. But we have done it to offer the best customer service in Southeast Asia. Also, the new aircraft are more environmentally friendly and more efficient so we will reduce our operating costs.
What will you do with the old aircraft?
We renew our fleet once they reach 10 years service. We pride ourselves on a young fleet but these days you can only really call it young when they are less than five years old. When they reach 10 they are not so young anymore and that’s when we move them on.
How does SkyTeam influence your strategy?
We contribute to SkyTeam as a Southeast Asian member and we have great partnerships with all the SkyTeam airlines. But we continue to look at what the alliance offers and the value it brings to Vietnam Airlines and its customers.
It is sensible to keep on evaluating the effectiveness of any partnership. But so far, SkyTeam has proven to be a great brand and it has provided a real boost to our business.
Will ASEAN liberalization make a difference?
There is a lot of argument about this program both at a country level and at an airline level. Vietnam Airlines is ready for liberalization and we would welcome open skies. But there should be a clear path toward this goal and clear markers along the way because each country is in a different stage of development and their airlines are also in different stages of development. Look at Singapore—they want open skies. But Singapore is at a very different stage of development to Indonesia or Myanmar. So, our position is that we see competition as a good way to grow the airline in a sustainable fashion. And it is good for the customer because it gives them more choice. But we also support a clear roadmap to get everybody to that end goal in an equitable manner.
What is your view of the development of Low Cost Carriers (LCCs) in the region?
LCCs have brought an overall expansion in traffic in the industry. More and more people are traveling because of the low fare sector. And all airlines benefit from that because people get a taste for travel. It also helps Vietnam Airlines keep costs low to be competitive. The challenge for a full service airline is in how to engage the sector. Vietnam Airlines has decided to become a shareholder (67%) in Jetstar Pacific. It means we can leave this arm of the company to compete in the low cost arena while Vietnam Airlines concentrates on premium travelers and full service. It enables us to deliver a full suite of products in an efficient way.
Can the market really be segmented in this way?
It can because it helps the customer easily recognize the different service propositions. Vietnam Airlines offers a comprehensive network and all the benefits that come from a full service carrier and a member of SkyTeam. And that counts on short haul flights too. It’s not about the free sandwich but about the network and the added value. Customers care about whether you can offer a great connection.
How will the growth of China affect the region and Vietnam Airlines? Of course, China is a huge market, which is a good thing. You cannot be afraid of the big guy. We have some good routes into China and within Indo-China. We have a good product to offer the Chinese traveler and we see double digit increases in their numbers every year. But China’s carriers are also growing. We appreciate the competition because we want to be a part of industry and Chinese growth and we must be robust enough to compete in an integrated world. As a country, Vietnam is also looking for ways to integrate into the global economy. It has joined the World Trade Organization and the Asia Pacific Economic Cooperation and this will also help our airline.
Looking ahead, how will you position Vietnam Airlines in the market?
Our vision for the long term is not to be a global carrier like British Airways or Air France. But we cannot rely on just the Asia Pacific region either. It will become ultra competitive. And that is why we have bought long haul trans-continental aircraft. We will concentrate on Vietnam, Laos, and Cambodia but we will look to feed this traffic into selected long haul destinations.
What would you say are the biggest challenges to your growth strategy?
The biggest challenge is surviving. That will not be easy for an airline in an open sky, liberalized environment. We have to achieve sustainable growth in the face of fierce competition. It will also be a challenge to get the human factor in the airline right. It is important to look at each person in the company and at the organization as a whole to make sure we can achieve our vision.
Each individual must align with the vision and help move the airline forward. It is not just about fleet and the network. It is about having the right people with the right capabilities. An airline is a team.
What would employees say about you?
That he is tough but fair.
More information at: www.vietnamairlines.com