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Vietjet: 1.8million cheap or free fares to restore Da Nang service

Analysis

As the sudden and unexpected outbreak of COVID-19 in Da Nang has been brought under control, Vietnamese air services are returning to something closer to normal.

To help kick start the recovery, Vietjet is issuing nearly two million heavily discounted or free fares.

The LCC has a substantial order book, of which more than half are MAXs, many due for delivery in 2021.

The Vietnam domestic market is fast returning to normal, following the blip, which caused the country's remarkable resurgence to halt briefly.

Summary

  • The mid-Jul-2020 COVID outbreak in Da Nang disrupted a long spell of no infections in Vietnam.
  • Vietjet is advertising a major air fare promotion to stimulate the recovery.
  • The independent LCC has 200 MAX aircraft on order, as well as 124 Airbus A320 family.
  • Capacity is heading towards a similar level to 2019, after exceeding it prior to the Da Nang outbreak.
  • Vietnam has adopted clear and standardised practices which support recovery.
  • International expansion is however still stalled.

Vietjet resumes Da Nang operations with a major fare promotion

Vietjet has resumed its Da Nang domestic schedule, suspended following the unlikely COVID19 outbreak in that city in late Jul-2020, which had disrupted a lengthy period of COVID-free performance in Vietnam. Since 21-Aug-2020, the country has experienced only single digit daily cases, with none on some days and activity is starting to return to pre-Jul-2020 levels.

From 15-Sep-2020 Vietjet resumed four times daily Da Nang-Ho Chi Minh and three times daily Da Nang-Hanoi service. From Oct-2020, the frequency is planned to increase to seven to 10 times daily service.

Vietjet is offering 1.8 million ultra-low tickets priced from VND0 (only government etc taxes payable) to promote the expansion. The tickets are on sale only  from 15/17-Sep-2020, valid for travel between 10-Oct-2020 and 31-May-2020.

Vietjet is quickly seeking to recover lost ground as the Da Nang COVID outbreak subsides. Domestic capacity

VIETJET DOM CAPAC

As can be seen from the above graph, following near closure in Apr-2020, Vietjet recovered - in capacity terms - to above 2019 (red line) levels in early Jun-2020 and stayed up until the Da Nang outbreak quickly slowed national operations.

The earlier optimism and the partial recovery from the very large impact of the Da Nang slowdown is mirrored largely in the track the share price has followed.

Vietjet share price Mar-2020 to Sep-2020

Source: www.tradingview.com

Vietjet's current fleet is mostly in service. Large MAX orders may be able to be renegotiated

Currently Vietjet has most of its fleet in operation, with only nine A320/321 aircraft grounded, according to the CAPA Fleet Database, a reflection of the health of the Vietnamese recovery.

Only nine of Vietjet's fleet are currently grounded

FLEET

Vietjet is one of the four southeast Asian LCCs with extremely large orders for aircraft.

Of the 349 on order, 200 are MAXs, of which nearly half were due for delivery in 2021. Here, Boeing's bad news may well be good news for Vietjet; even if the airline continues to plan for very rapid growth, the problems with the MAX will quite probably provide the LCC with a great deal more flexibility in delivery dates and financial commitments - although there has been no public statement concerning renegotiation or otherwise.

Undoubtedly Airbus - or any one of a number of lessors - would be happy to oblige with any shortfall in capacity, if that were likely.

Vietjet aircraft orders, planned delivery dates

The primarily domestic airline managed to achieve over 40% of Vietnam's domestic market in 2019, following a steep growth path since its launch. Its domestic capacity grew almost 20-fold in the years between 2012 (1.1 million seats) and 2019 (19.4 million seats). As of 16-Sep-2020 its domestic share is 38%.

However, since its launch on 16-Jan-2019, hybrid carrier Bamboo Airways, with a fleet of 19 Airbus aircraft and 3 787s, has rapidly carved out a 15% market share. Vietnam Airlines, the country's flag carrier retains the largest domestic capacity share, with 47%, according to OAG.

Vietnam has instituted intelligent and consistent health procedures across all airports and airlines

Helping make this holistic growth possible, government and industry are clearly on the same page, in both providing security to passengers through their entire journey and minimising chances of spreading the virus.

As the airline notes: "All passengers flying within Vietnam are required to take sufficient measures such as wearing masks at airports and onboard the flight, filling up mandatory health declaration form and installing contact tracking app Bluezone on their smartphone."

While domestic surges ahead, international expansion remains precarious

In southeast Asia and China, most countries have the virus well under control and, on 3-Sep-2020, Aviation Administration of Vietnam (CAAV) deputy director Vo Huy Cuong announced plans to resume very low frequency service by Vietnam Airlines and Vietjet to Guangzhou, Tokyo, Seoul, and Taipei, as well as Laos and Cambodia, effective 15-Sep-2020. Notably, Thailand, where Vietjet operates a subsidiary, Thai Vietjet in the domestic market.

But, as another sign of the complexity of reopening international corridors, Vietnam's Deputy Transport Minister Le Anh Tuan announced on 15-Sep-2020 that the resumption would be postponed to an unconfirmed date. For the short term at least, those airlines able to operate within the confines of a domestic market will be much more likely to prosper.

The first stage of the recovery entails getting seats and passengers back into the air (while continuing to restrain the spread of COVID-19). The next phase could be much more difficult still: returning to profitability with improved yields.

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