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Vietnam-India market's rapid growth. VietJet first with nonstops

VietJet Air is poised to become the first airline to operate scheduled nonstop flights connecting Vietnam and India. The Vietnamese LCC plans to operate four weekly services initially, from Ho Chi Minh to Delhi, but over the next several years could add several routes to India

The Vietnam-India market is relatively small but has been growing rapidly. From a small base, traffic has nearly tripled over the past five years and was up 30% in 2017, driven by a 30% increase in Indian visitor numbers to Vietnam.

Vietnam and India are among the 10 most populated countries in Asia and are only four to six hours apart by air. Vietnam is also an increasingly popular tourist destination and India is one of the fastest growing outbound markets. While there is now sufficient demand to support direct services, VietJet will have to overcome stiff competition from sixth freedom competitors, which have the advantage of offering multiple Vietnam-India city pairs.

Summary 

  • Vietnam-India traffic has nearly tripled in five years but does not currently have any scheduled nonstop services.
  • VietJet has committed to operating nonstop services to India, starting with a four times weekly route from Ho Chi Minh to Delhi.
  • Jet Airways previously served the Vietnam-India market with a one-stop product via Bangkok; the airline has maintained its position as the market’s second largest competitor since suspending Ho Chi Minh two years ago by relying on a codeshare with Vietnam Airlines.
  • Thai Airways is the largest of several six freedom competitors and is currently the market leader, offering quick one-stop connections from Hanoi and Ho Chi Minh to several Indian cities.

Ho Chi Minh-Delhi will be VietJet’s longest route

In Mar-2018 VietJet announced plans to serve India starting with a four times weekly service from Ho Chi Minh to Delhi. VietJet has not yet set a launch date or started selling the service but has secured approvals, and New Delhi has been loaded as a destination into its online reservation system.

VietJet could soon decide on a launch date of late 2018 or early 2019. The delays in deciding on a launch date since the Mar-2018 announcement have likely been partially driven by delivery delays with the A321neo.

Earlier this year Pratt & Whitney engine issues forced VietJet to ground its first A321neo, which it took at the end of 2017, and have resulted in delivery delays for subsequent aircraft. VietJet finally took its second and third A321neo in Aug-2018 and is expected to take five more A321neos by the end of 2018, according to the CAPA Fleet Database. The airline is currently using the A321neo on some of its longest routes (from Vietnam to northern China, Japan and South Korea) and will be able to launch more long narrowbody routes as it takes delivery of additional A321neos.  

VietJet has 70 A321neos on order, according to the CAPA Fleet Database. The A321neo is ideal for Ho Chi Minh-Delhi route as the route is more than five hours. The route could be operated with A320ceos or A321ceos, but VietJet may have payload restrictions during certain times of the year.

VietJet’s longest current scheduled route is Ho Chi Minh-Seoul, which is approximately 100km shorter than Ho Chi Minh-Delhi. It is VietJet’s only current route over five hours and is served twice daily with a mix of A321s and A321neos.

However, VietJet is currently operating longer charter routes to Japan (including Hanoi to Sapporo, which is operated with A321neos and is more than five hours). VietJet plans to launch scheduled services to Japan in Nov-2018. 

VietJet weekly frequencies based on scheduled length of flight: w/c 8-Oct-2018


CAPA – Centre for Aviation & OAG.

VietJet keen to operate multiple India routes over time

Having announced its commitment to the India market at a Mar-2018 Vietnam-India business forum in Delhi, Vietjet expects to launch other Vietnam-India routes in future.

Ho Chi Minh-Mumbai would be the next logical route for VietJet as it is broadly the same size as Ho Chi Minh-Delhi. Ho Chi Minh-Mumbai accounted for 13% of total Vietnam-India bookings in 2017 and Ho Chi Minh-Delhi accounted for 14%, according to OAG Traffic Analyser data. Ho Chi Minh-Mumbai is only 100km longer than Ho Chi Minh-Delhi.  

Hanoi-Delhi is the third largest Vietnam-India city pair, accounting for 12% of Vietnam-India bookings in 2018. Hanoi-Mumbai is fourth largest, accounting for 9% of bookings in 2017. Hanoi-Delhi is approximately 600km shorter than Ho Chi Minh-Delhi, making it very feasible with A320ceos, while Hanoi-Mumbai is only approximately 200km shorter than Ho Chi Minh-Mumbai.

India will be VietJet’s tenth international market with scheduled services and first in South Asia. It currently has scheduled services to Cambodia, Hong Kong, Malaysia, Myanmar, Singapore, South Korea, Taiwan and Thailand as well as charters to mainland China and Japan. As previously mentioned, Japan will become a scheduled market in Nov-2018 when Hanoi-Osaka services are launched. (VietJet also plans to launch services on the longer Ho Chi Minh-Osaka route in Dec-2018 and from Hanoi to Tokyo Narita in Jan-2019.)

VietJet has been pursuing rapid international expansion over the past two years, after focusing mainly on the domestic market in its first four years of operations.

See related report: VietJet Air pursues rapid international growth, tripling in 15 months, with focus on Korea & Taiwan

Vietnam-India market seems large enough to support nonstop services

VietJet will be the first airline to operate scheduled nonstop services in the Vietnam-India market. Its rival LCC Jetstar Pacific currently operates a limited low frequency seasonal charter service between Hanoi and Gaya.

The Hanoi-Gaya route is relatively short, less than four hours, as Gaya is located in eastern India. Gaya is a popular religious pilgrimage site for Buddhists and is almost entirely an inbound market.

Ho Chi Minh-Delhi is a much bigger market, which consists mainly of leisure passengers originating in Delhi. Hanoi-Gaya is the thirteenth largest Vietnam-India route based on bookings, and Ho Chi Minh-Delhi is the largest.

The Vietnam-India market has grown rapidly, driven mainly by outbound leisure demand from India. Vietnam-India passenger traffic has nearly tripled over the past five years to approximately 200,000 return passengers in 2017, according to AirportIS data. In 2017 the market grew by approximately 30%.

Vietnam also reported a 30% increase in Indian visitor numbers in 2017, to approximately 110,000. Indian visitor numbers to Vietnam are expected to increase at an even faster rate in 2018 – by over 50%, to 170,000 – due to Vietnam having extended its e-visa programme in Jan-2018 to include India

The Vietnam-India market therefore should now be big enough support a regular nonstop service.

VietJet will need to rely on feed as the Vietnam-India market is fragmented

VietJet will need to attract nearly 80,000 Vietnam-India return passengers per annum to sustain an 80% load factor (based on four weekly services using A321s). This would represent less than 30% of the total Vietnam-India market or less, given that the market will likely continue to grow at a rapid rate – particularly since VietJet should be able to stimulate demand. VietJet’s fares are generally very low and the new nonstop product should make Vietnam a more attractive destination for Delhi residents.   

However, securing 30% or even 20% market share could be challenging, given that the Vietnam-India market is fragmented and there is no single city pair that accounts for more than 15% of Vietnam-India traffic. Feed on both ends could therefore prove critical.

VietJet will clearly need to rely on connections beyond Ho Chi Minh to make the Ho Chi Minh-Delhi route viable. VietJet has an extensive domestic network in Vietnam, with 17 destinations. The ability to offer connections or stopovers in popular tourist destinations such as Da Nang, Da Lat, Haiphong, Hue, Nha Trang and Phu Quoc should help the airline attract passengers from Delhi.

A partnership with an Indian airline would also help, particularly if VietJet is to increase the Ho Chi Minh-Delhi service to daily. An Indian airline could provide feed from Mumbai, the other main Indian gateway for Vietnam-India traffic, as well as several cities in central and southern India.

Feed from Bangalore, Chennai and Hyderabad is particularly important. The city pairs Ho Chi Minh to Bangalore, Chennai and Hyderabad are the fifth, sixth and seventh largest between Vietnam and India, according to OAG Traffic Analyser data. 

Vietnam-India top 20 city pairs ranked by percentage of bookings: 2017

Rank Route Percentage of bookings
1. Ho Chi Minh-Delhi  14%
2. Ho Chi Minh-Mumbai 13%
3. Hanoi-Delhi 12% 
4. Hanoi-Mumbai 9% 
5. Ho Chi Minh-Bangalore 7% 
6. Ho Chi Minh-Chennai 7% 
7. Ho Chi Minh-Hyderabad 4% 
8. Hanoi-Kolkata 4% 
9. Hanoi-Bangalore 4% 
10. Ho Chi Minh-Kolkata 4% 
11. Hanoi-Chennai 3% 
12. Ho Chi Minh-Cochin 2% 
13. Hanoi-Gaya 2% 
14. Ho Chi Minh-Trivandrum 2% 
15. Hanoi-Hyderabad  1% 
16. Ho Chi Minh-Gaya 1% 
17. Ho Chi Minh-Tiruchirappalli 1%
18. Ho Chi Minh-Ahmedabad 1% 
19. Hanoi-Cochin  1%
20. Da Nang-Mumbai  1% 

Jet Airways already has a partnership with Vietnam Airlines 

In 2017 VietJet developed an interline capability and has started working with some full service airlines such as Japan Airlines and Qatar Airways. It could potentially work with an Indian full service airline or LCC, although it could be hard finding an LCC with interline capability and the desire to work with a Vietnamese airline.

Jet Airways would be perhaps the most attractive of the full service airlines in India. However, Jet Airways already has a codeshare partnership with Vietnam Airlines. This codeshare seems to be successful, as Jet Airways has been able to maintain a significant share of the Vietnam-India market since dropping one-stop services to Ho Chi Minh in Mar-2016.

Jet launched services to Ho Chi Minh in Nov-2014 as a tag to one of its daily Delhi-Bangkok flights, using 737-800s. In Jul-2015 Jet switched to a tag on one of its daily Mumbai-Bangkok flights, using larger 737-900s. The Mumbai-Bangkok-Ho Chi Minh flight operated until late Mar-2016, when Ho Chi Minh was dropped entirely. 

The switch in origin points from Delhi to Mumbai was not significant because Jet Airways offered a one-stop product from both Delhi and Mumbai for the entire period of its Ho Chi Minh service. Jet Airways has Delhi-Bangkok and Mumbai-Bangkok services that arrive at Bangkok at similar times. The transit time in Bangkok was one to two hours in both directions in both the Ho Chi Minh-Delhi and Ho Chi Minh-Mumbai markets.

Jet Airways could not make Ho Chi Minh work as an online point

Jet struggled with the one-stop service because the product was no different from competitors, which also offered one-stop products from Ho Chi Minh to Mumbai and Delhi (via Bangkok, Kuala Lumpur and Singapore). Jet had fifth freedom rights to carry local Bangkok-Ho Chi Minh passengers, but this in an extremely competitive and low yielding market. Jet’s low frequency, and the fact that it is not a well-established brand in Southeast Asia, made it hard to attract fifth freedom traffic.

The stop in Bangkok also meant that Jet had a two-stop product from Ho Chi Minh to cities in India other than Delhi and Mumbai. Passengers travelling from Mumbai to Vietnamese cities other than Ho Chi Minh also had two stops – and had to endure a self-connection because at the time Jet did not work with any airlines in Vietnam.

The sixth freedom competitors in the Vietnam-India market have the advantage of offering one-stop products between multiple points in Vietnam and several points in India with generally quick connections at their hub. Jet only provided a one-stop product on two city pairs that only account for less than 30% of total Vietnam-India traffic (although they are the two largest city pairs).

VietJet will have a one-stop product on more than 10 city pairs – and an even higher number if it is able to partner with an Indian domestic airline – along with an exclusive non-stop product on the single largest city pair.

Jet Airways remains the second largest airline in the Vietnam-India market

Jet Airways’ decision to suspend the Bangkok-Ho Chi Minh tag and instead rely on a new codeshare with Vietnam Airlines seems to have paid off, as the airline’s share of the Vietnam-India market has only dropped slightly. The codeshare provides quick connections in Bangkok from Hanoi and Ho Chi Minh that are similar to Jet’s previous one-stop online schedule. 

Jet Airways also codeshares with Vietnam Airlines in Hong Kong and Singapore, offering Vietnam-India passengers other options, although Bangkok generally provides the quickest option. In Singapore, Jet Airways also codeshares with Jetstar Asia to Ho Chi Minh and Da Nang.

Jet Airways accounted for approximately 20% of total Vietnam-India bookings in 2017, according to OAG Traffic Analyser data. Its share of bookings in 2015, the last full year it operated one-stop services to Ho Chi Minh, was only slightly higher, at 25%. Given the overall growth in the market, Jet Airways actually has more bookings in the Vietnam-India market with Vietnam as an offline point than when Vietnam was part of its online network. 

VietJet will also compete against Thai Airways, Malindo, SIA and AirAsia

Since suspending its Ho Chi Minh service, Jet Airways has been able to maintain the position of second largest competitor in Vietnam-India market after Thai Airways.

Thai Airways accounted for approximately 27% of Vietnam-India bookings in 2017. Thai Airways and its full service regional subsidiary Thai Smile currently serve 10 destinations in India. Thai Airways serves both of the main cities in Vietnam (Hanoi and Ho Chi Minh).

Malindo, Malaysia Airlines, Singapore Airlines and AirAsia are the other main one-stop competitors in the Vietnam-India market. All these airlines have several destinations in India, as well as multiple destinations in Vietnam. Therefore they have more one-stop city pairs than Jet Airways, although generally they have fewer city pairs than Thai Airways.

Malindo accounted for a 15% share of Vietnam-India bookings in 2017, followed by Singapore Airlines with 11% (or 12% when its regional subsidiary SilkAir is also included), Malaysia Airlines with 10%, and AirAsia with 7%. The AirAsia figure includes services via both Bangkok and Kuala Lumpur.

VietJet will have to overcome some challenges in the India-Vietnam market

AirAsia and Scoot are the only current LCC competitors in the market, but Scoot’s market share is very small. VietJet will have an advantage over its LCC rivals in the Ho Chi Minh-Delhi market as it will have an exclusive nonstop product. However, VietJet will not have this advantage in other markets, and will have a relatively limited number of one-stop city pairs unless and until VietJet is able to forge a partnership with an Indian airline.

Competition will be intense, as AirAsia and Scoot are both now focusing more on sixth freedom traffic. Malindo is also an aggressive low fare competitor, despite having a full service product. Thai Airways can also sometimes compete with LCCs on price and will continue to have the advantage of offering the greatest number of destinations in India.

Vietnam-India is obviously an attractive market, given the anticipated rapid inbound growth. VietJet should be able to make a nonstop service work, with low fares stimulating an acceleration of the already rapid growth rate in the number of Delhi residents heading to Vietnam for holidays.

However, VietJet will need to invest in marketing in India, where its brand is unknown, and in distributing through local online travel agencies, which are very strong in India. The India market is never an easy one to penetrate.

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