A special mechanism is required to “rescue” aviation industry

Trường Lăng

June 9, 2022


A special mechanism is required to “rescue” aviation industry

Trường Lăng

June 9, 2022

Risk of acquisition

Le Anh Tuan, the Deputy Minister of Transport has just proposed the Government should take the timely support policy not only for Vietnam Airlines but also other airlines because aviation activities are very sensitive. In the context that the countries also have many strong support solutions for airlines, especially national airlines, if Vietnamese airlines are  not supported by the Government to overcome the difficulties, the high risk of foreign enterprises’ aviation market loss is natural.

This concern of the Deputy Minister is not unfounded. Said Dr. Bui Doan Ne, Vice President cum General Secretary of the Association of Vietnam Airlines, not only domestic new aviation enterprises, but also foreign aviation enterprises will strongly carry out the business activities in Vietnam, when aviation recovers in the coming time. 

Most of these enterprises have more competitive advantages than domestic enterprises, such as financial, technical and human capacity, wide flight network, diversified services, abundant source of passengers, … assessed Mr. Ne.

Even some enterprises that directly compete the domestic airlines also receive the great support from their Government when they join in the Vietnamese market. In addition, some enterprises also establish the sustainable relationships with passengers, create a superior position, even exclusive in some fields, especially freight. Thus, Mr. Ne is worried that very great competitive pressure from all aspects requires the domestic airlines to do comprehensive efforts. The depletion of financial resources makes airlines hard to take the opportunities to re-appear after the pandemic.

Until now the Civil Aviation Authority of Vietnam said that Vietnam has restored the flight lines to more than 20 traditional countries/territories, but the number of international passengers is still mainly public servants, relative visitors, businessmen, the number of tourists (including both inbound and outbound passengers), the main source of tourists in the aviation industry is still very limited.

The 3 largest markets like China, Korea, and Japan bringing the highest revenue and profits have not yet reopened to tourists; The Russian frozen market makes the international aviation need a very long time to recover.  

According to the forecast of the International Air Transport Association (IATA), the world international aviation market will recover at the 2019 rate by 2025. For domestic transportation, the recovery will come sooner. Compared to 2019, domestic passengers will reach 93% in 2022, 103% in 2023, 111% in 2024 and 118% in 2025.

However, neither all markets or market segments recover at the same rate, but they are highly dependent on travel restrictions, especially China’s zero Covid policy. Therefore, IATA forecasts that Asia – Pacific, including Vietnam, is a lagging region during the recovery process and they will not reach 97% until 2024 compared to the time before the epidemic.

Licensing new airlines is suspended

Professor Tran Tho Dat, the former President of the National Economics University, suggested that the State Bank of Vietnam should speed up the credit support package for the enterprises. From the fairness and efficiency point of view, aviation – tourism and several related service industries should be considered as the top priority industries to borrow funds at the preferential interest rates, with a minimum term of 2-3 years, to recover because of the most serious influence.

vietjet air va bamboo airways cung mong muon duoc chinh phu giai cuu giong vietnam airlines fb

And that, it is also necessary to consider reducing some costs to partially limit the impact of the increase in gasoline and jet fuel prices by reducing the import tax rates on aviation fuel; removing some constraints on price policy such as adjusting the ceiling price of air tickets; allowing airlines to surcharge fuel for domestic flights; giving airline service price support… 

For airlines, they should take the proactively solutions to overcome and adapt flexibly.

Said Assoc.PhD. Pham Thi Giang Thu (Hanoi Law University), in addition to financial support, licensing should be suspended and new airlines should be founded at this time to restore and develop the existing airlines. 

For the current debt of airlines, she suggested that the airlines should debt redemption, securitization of such debts, because domestic airlines are unable to access the credit institutions, and banks themselves cannot lend anymore because the debt hit the ceiling. 

Said she, the Circular dated April 2021 of the State Bank allows Vietnam Airlines to dispose and restructure the debts, so should it be considered to apply on the other airlines? With the important role of the aviation industry, such as its revenue is more than 21 times, tax is 100 times more than the railway industry, Ms. Pham Thi Giang Thu suggested that there should be a specific mechanism for the aviation sector, such as the National Assembly is considering a special preferential mechanism for Khanh Hoa?

Mr. Nguyen Ngoc Canh, Vice Chairman of the State Capital Management Committee, proposed the Ministry of Transport to apply the solutions to manage the size of the domestic aviation market. 

There of, it is necessary to control the number of new airlines until the market recovers; In the short term, the additional licensing to the fleets should be restricted until domestic airlines exploit all the available aircrafts, until the operation size returns to the same rate as in 2019 to avoid oversupply, wasting the society’s material wealth. 

For a long term, the Ministry of Transport considers to propose that the number of additional aircrafts should not be beyond the growth rate of the airport system’s receiving capacity and match the growth rate and market management capacity; Opening the door as scheduled for the foreign airlines until the aviation market recovers to regulate and limit the number of flights.

In addition, in terms of air freight and transport policy, the Government should take the measures to control and regulate the prices during unusual periods to restrict the confrontation and ensure the stable and sustainable development of the aviation industry by issuing the minimum prices (floor prices) for air transport services, basic passenger transport services for the flights.

Going on supporting the aviation industry under the Government’s Resolution No. 43 until the market recovers, such as reducing the costs of take-off, landing and flight operating; free government guarantee; increasing the reduction of environmental protection tax for the airlines. The State Capital Management Committee proposes to exempt and reduce 100% of environmental protection tax for Vietnamese airlines under the pressure of raw material prices.

Source : VietNam.Net

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