Airline Weekly - October 26, 2015
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Airline Weekly - October 26, 2015

Viet Glam: Vietnam Airlines looks to turn heads with shiny new planes and sexy new routes

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Cover Story

Viet Glam: Vietnam Airlines looks to turn heads with shiny new planes and sexy new routes

Long overlooked in a region with legions of more established carriers, Vietnam Airlines is now grabbing the airline industry’s attention. This fall, it became just the second airline worldwide to fly state-of-the-art A350s, a plane it’s now flying to Paris, and a plane that underscores its ambition to modernize and globalize. The A350 inauguration, moreover, follows receipt this summer of the airline’s first B787-9, a similarly cutting-edge machine that Vietnam Airlines quickly deployed to London.

Is this the dawn of a long-stodgy airline’s rise to aviation prominence?

There are a number of modestly positive signs, although these are often tempered by offsetting risks and shortcomings. Late last year, as part of a larger government effort to privatize state-owned companies, Vietnam Airlines completed an initial public offering. And although it didn’t raise much money, selling just 4% of itself, the transaction signaled a move toward more commercially-minded, returns-based management.

Conducting an IPO, moreover, required Vietnam Airlines to disclose its financial statements, through 2013 anyway. They revealed smallish profits in the first four years of the decade, although as with many airlines around the world, the first of those years—2010—was its best. During the first nine months of this year, meanwhile, according to a recent company press release, it earned just short of a $60m pretax profit on about $2.4b in revenue, good for a 2% pretax margin. The airline added, however, that it receives government financial support—three quarters of its loans, it said, are guaranteed by the state, in a similar way to how China’s government converts national savings to low-interest loans doled on favored companies.

In 2010, Vietnam Airlines joined SkyTeam and has since worked to upgrade its service standards, which nonetheless haven’t yet reached levels—at least in the minds of global business travelers—commensurate with industry leaders like Singapore Airlines or Emirates. Labor productivity is likewise improving but with more work to go.

Doesn’t sound too exciting? Well, maybe not. But Vietnam’s economy is one big reason why Vietnam Airlines stands well positioned to move into the ranks of larger, more successful global carriers. In today’s environment of struggling emerging markets, Vietnam’s GDP grew a bullish 7% y/y in Q3, helped greatly by lower oil prices. Indeed, unlike its ASEAN neighbor Indonesia, Vietnam has diversified its economy away from dependence on commodity exports, relying more on manufacturing, which in turn... (410 of 1,641 words)

Also Inside this Issue:

If the airline business were a video game, merging two reservation systems would be the final challenge. But American, having slayed that dragon without so much as a scar, has learned its problems aren’t over. Sure, it’s making truckloads of money, like the rest of the U.S. airline sector. But thank cheap fuel for that. Remove energy from the equation, and what’s left is a lot of revenue degradation, from the strong dollar, from weak economies in its Latin American stronghold, from multipronged attacks by ultra-LCCs and—perhaps most damaging of all—from the unleashing of Southwest in American’s critical Dallas-Fort Worth market.

Revenue pressures weren’t much lighter at United, whose Houston hub is a hedge against high oil prices but suffers when oil prices fall. But United too enjoyed supersized profits all the same, even if still less impressive than those of its peers. Here’s to a speedy recovery for new CEO Oscar Munoz, who has a plan to bridge that deficit.

Southwest did well despite a less drastic drop in fuel costs. Hawaiian did even better. And Alaska? Oh my. Allegiant, meanwhile, thinks its margins are too high (not a typo).

Norwegian is not quite in that gilded category. But its summer was good, perhaps presaging positive earnings from other European carriers. They too are starting to enjoy cheaper fuel—and by all accounts saw rip-roaring demand this summer. Among them is Ireland's Aer Lingus, which announced yet another new U.S. offensive last week, this time from behind the great iron gates of the IAG citadel.

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