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11-Feb-2010 3:51 PM

AirAsia's fourth cross-border JV: Vietnam. Next stop: The Philippines (then India and North Asia)?

Analysis

AirAsia has at last broken into the high potential Vietnam aviation market, revealing the acquisition of a 30% stake in a local airline. This is the carrier's fourth ASEAN venture (after Malaysia, Thailand and Indonesia) and setting it on course to tackle its next ASEAN ambition; a venture in The Philippines. The Vietnam venture pits it against its new strategic partner, Jetstar and its local JV, Jetstar Pacific.

AirAsia's move is the culmination of over four years of effort to establish itself in Vietnam - a key ASEAN growth market - and reflects the inherent difficulties expansion-minded carriers like Jetstar and AirAsia have in developing cross-border ventures. Each must pursue their own interests in getting established, but the progress of Jetstar and AirAsia in covering the field points up an increasingly powerful market position - doubly so, should they join forces in the future. Meanwhile though, it will more likely be seen as a dampener on the Jetstar-AirAsia alliance, even though it has been in the mix for many months.

See related report: AirAsia and Jetstar join forces: a potential killer combination in Asia

AirAsia getting closer to ASEAN dream

AirAsia's vision is to dominate the ASEAN aviation scene. It is a worthy strategy, given the grouping's progressive liberalisation of aviation access, which is creating powerful growth opportunities.

But the road has not been smooth.

Since first unveiling its ambition in Mar-2006 to establish cross-border JVs in Vietnam (and the Philippines), AirAsia has had its share of frustration in getting established in the country.

In Apr-2006, the airline's application (as AirAsia) to launch services from Kuala Lumpur to Ho Chi Minh City (Vietnam's commercial hub) was rejected, with authorities citing airport congestion issues. The carrier eventually gained rights to launch services to second choice Hanoi in Oct-2006 and added a second daily service to the capital in Jun-2007. Thai AirAsia added service to Hanoi from Bangkok in late 2006.

In Apr-2008, AirAsia finally gained rights to operate from KL and Bangkok to HCMC (as fresh terminal capacity became available), initially launching daily and twice weekly service, respectively. More recently, in Sep-2009, the group added service to HCMC from Jakarta, via Indonesian unit, Indonesia AirAsia, while in Nov-2009, Thai AirAsia announced a new daily service between Phuket and Ho Chi Minh City.

First JV knocked back

But a bigger setback was AirAsia's failure to win regulatory approval for its 'Vina AirAsia' JV with local shipbuilder, Shipbuilding Industry Group, or Vinashin. The venture, announced in Aug-2007, was to involve a 30:70 ownership between AirAsia and Vinashin, but by Oct-2007 reports emerged that the government had refused to grant a licence to the venture.

Reports at the time suggested Vietnam Airlines had mounted strong opposition to the proposed AirAsia operation, while Qantas had requested Vietnam not to license any new airline for three years after the carrier made a USD50 million investment to acquire a stake in Pacific Airlines (now Jetstar Pacific).

Click Here for the full report, featured in this week's edition of Peanuts! Weekly.

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