Coming of age

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With a large population, optimism over inbound tourists and business visitors and forecasts of 7-8% economic growth a year, Vietnam Airlines is enjoying a new dawn

the new advertising slogan for vietnam Airlines is Bringing Vietnamese culture to the world. And the carrier is certainly doing more of that these days. The airline has, over the past decade, been one of the world's fastest-growing national carriers, and it expects to continue expanding at similarly phenomenal rates through to at least the end of this decade.

The man spearheading the state-owned airline's ongoing transformation from bureaucratic government employment service to respected international operator is president and chief executive Nguyen Xuan Hien. A former military pilot who was appointed to the post in mid-2000, he replaced Dao Manh Nhuong, who had led the carrier for around two years.

No-nonsense approach

A no-nonsense boss who prefers getting down to business to making small talk, Hien was deputy director general of the country's civil aviation authority at the time of his appointment. He took over as the airline was recovering from two years of financial troubles caused by the Asian economic downturn that began in mid-1997.

In the wake of the region's crisis the carrier suffered losses in 1997 and 1998 as traffic volumes suddenly weakened. That came as a shock to an airline that had averaged annual traffic growth of around 30% over the previous five years. Since 1998, traffic has rebounded once more, to average about 15% annually.

Earnings figures are difficult to come by, but Vietnam Airlines did say early last year through state-run media that it contributed around 600 billion dong ($38 million) to the state in 2002, on revenue of 11 trillion dong.

Regarded for much of its existence as a Soviet-style basket case, the carrier has been dramatically improving its operations since the country embarked on an economic reform programme in the late 1980s. It is today regarded as one of the Socialist Republic of Vietnam's best-performing assets - and one which is helping to boost the overall image and confidence of the still-rebuilding nation.

The airline today operates only Western-made equipment, connecting 13 domestic destinations and serving more than two dozen international cities. It is also striving to improve its service standards and internal procedures, and hopes to attract more high-yield passengers as it continues to develop.

Many television viewers in Asia will have seen a slick new advertising campaign that was launched in 2003, and air travellers in the region will notice a modern livery based on the golden lotus flower that is progressively adorning the airline's rapidly growing fleet. Hien plays down the image-building efforts, saying they are things that many other airlines are doing, but it is clear the carrier is working to enter the bigger leagues.

In fact, Vietnam Airlines has a history dating back to 1956 but was only formally established as a corporation in the 1990s through the rationalisation of other state-owned aviation businesses. Hein says that, conservatively, he expects passenger numbers and cargo volumes to grow by an average of 12-16% annually to 2006, with annual growth between 2006 and 2010 to be set at around 10-12%.

Although its passenger business was badly affected by the SARS outbreak that was active in Asia - including Vietnam - between March and July 2003, Hien says strong demand quickly returned on all routes.

In 2002, the airline carried just over 4 million passengers, posting annual growth of around 18%, and another 13% rise had been forecast for 2003 until SARS appeared. Late in December, the airline carried its four-millionth passenger for the year and expected to end the year having carried 4.05 million passengers, representing growth of just 1%.

While below original expectations, its 2003 passenger traffic statistics are better than those of many of its competitors in the Asia-Pacific region, which suffered SARS-related year-on-year declines in passenger numbers.

Hien says Vietnam Airlines expects to make up for all lost growth this year, however, adding that in 2004 "we think we can transport about five million passengers". If realised, this will represent growth of more than 20%.

"The growth is coming from domestic flights, and also the regional flights up to Northeast Asia or Asian countries, and to Europe," Hien said in an interview at the carrier's head office at Hanoi's old Gialam Airport.

Fleet build-up

The airline's fleet has been built up steadily in recent years to cater to the strong growth. It currently comprises four Boeing 777-200ERs and seven 767-300s, alongside three Airbus A321s, 10 Airbus A320s, eight ATR 72s and two Fokker 70s.

The airline has two more 777s on firm order with Boeing, as well as five A321s due for delivery from Airbus. In August it issued tenders for leases on two more 777s, as well as on one more ATR 72 and a further A321.

Hien says the carrier is also "planning to lease more aircraft for short-range flights such as ATR 72s or others", although precise requirements have not yet been determined. In addition, he says he will not hesitate to seek government approval for further capacity expansion if necessary. Early in January government officials were quoted as saying the airline's fleet is expected to grow from the current 34 to around 70 aircraft by 2010. The Vietnamese government is clearly aware of the benefits to tourism and the overall economy that Vietnam Airlines is bringing, and is also working to improve the country's airport and infrastructure to support it.

Vietnam Airlines is, meanwhile, negotiating codeshare agreements with SkyTeam alliance carrier Air France and Star Alliance carrier Lufthansa, says Hien, while planning to launch several more long- and short-haul routes over the next year.

He says codeshare agreements with Air France and Lufthansa will cover co-operation on their respective services between Europe and Vietnam.

The carrier has long served Paris and inaugurated services to Frankfurt in early January. New long-haul services were made possible by the addition of long-range 777-200ERs to the fleet in 2003. Previously its 767-300-operated Paris services required a technical stop in Dubai.

Until now the airline's bilateral partnership agreements have been with airlines in the Asia-Pacific, namely South Korea's Asiana Airlines, Cathay Pacific Airways, Taiwan's China Airlines, China Southern Airlines, Japan Airlines, Korean Air, Lao Airlines, Malaysia Airlines, Philippine Airlines, Australia's Qantas Airways and Singapore Airlines.

Delayed implementation

But it also has an agreement in place with oneworld alliance carrier American Airlines to co-operate on passenger services that connect in Paris. Hien hopes this agreement, which was signed in 2001 but not implemented, can finally go into effect soon.

He also says the airline's ultimate goal is to join a multilateral alliance, although for now it is happy with its many bilateral relationships. "We are still considering the global alliances," says Hien. "We are waiting for the time when Vietnam Airlines is strong enough, big enough, and then we are going to join one."

Vietnam Airlines is now considering opening services to London, possibly this year. Services to San Francisco in the USA are also being looked at and Hien says these are likely to start up early in 2005.

Vietnam and the USA recently signed an historic air services agreement allowing for the first passenger and cargo flights between the two countries since the fighting ended in 1975. The signing of the agreement followed several rounds of air services negotiations that began in 1998, following the re-establishment of diplomatic relations around four years earlier.

In 2000, a restrictive codeshare agreement was signed that allowed airlines from both sides to sell seats on services to the other country operated by third-country carriers, but it was only regarded as a "stopgap" measure until a formal air services accord could be negotiated. Vietnam Airlines has since been placing its code on China Airlines flights to the USA from Taipei.

Vietnam's full-blown bilateral agreement with the USA followed the signing of an air services accord with Canada only months earlier. Hien says Vancouver is another future destination for Vietnam Airlines although this city, as well as Los Angeles, is to be added to its network only after operations begin to San Francisco, which has an especially large Vietnamese community.

Asian launches

Closer to home, Vietnam Airlines is looking at launching services to Jakarta, Mumbai, New Delhi and Nagoya, says Hien. In 2003 it inaugurated services between Hanoi and Singapore, Kuala Lumpur and Siem Reap in Cambodia, as well as between Ho Chi Minh City and Fukuoka, Japan.

That is not to say that the airline is neglecting domestic operations, insists Hien, who says new internal routes will be added this year serving smaller points. It is, meanwhile, considering separating short-haul turboprop operations from the mainline business through the formation of a subsidiary to be known as VN Express.

The regional subsidiary is expected to be formed in the coming years through the overhaul of wholly owned air charter subsidiary Vietnam Air Services, operating short-haul domestic flights and those to neighbouring countries, feeding Vietnam Airlines' mainline services.

Hien stresses, however, that no formal decisions have been taken on the formation of VN Express and adds that government approval is necessary before it could be established. His company remains under the purview of the national civil aviation authority, which must approve all major initiatives.

He does predict that, while VN Express is unlikely to be established before 2006, the formation of a dedicated cargo arm will almost certainly come sooner.

Cargo is a priority for the airline in large part because Vietnam, which has one of the fastest-growing economies in Asia, has focused on the export of inexpensive locally manufactured or grown goods as a major growth area. Vietnam Airlines has seen demand for cargo exports grow sharply in recent years, and Hien says the airline carried more freight in the bellyholds of its passenger aircraft than it expected to during the period when it was being hurt by SARS. "Although the passenger business was affected by SARS, in cargo we beat our targets by 10%," says Hien.

In 2002 Vietnam Airlines carried more than 66,000t of cargo in its passenger aircraft, representing an increase of around 20%. In the first nine months of 2003 it had already carried nearly 54,000t of cargo and was budgeting for more than 73,000t for the full year.

"With the open-door policies and international co-operation of our government, there will be more chances for goods to be sent to Europe, America, Japan and Northeast Asia, so freighters for Vietnam Airlines will be needed in the future," Hien adds.

Cargo operations

He expects Vietnam Airlines Cargo, which will be equipped with both short- and long-range freighter aircraft, to be in operation in 2005. He does not say how many freighters are likely to be acquired or where they will operate to, but he does indicate that services to points in Europe and North-East Asia are likely, as well as those to North America. Demand for the transport of goods between Vietnam and the USA has enjoyed particularly steady growth since the re-establishment of diplomatic relations in the mid-1990s.

Vietnam Airlines is without question experiencing a coming of age, but for all the successes and grand estimates for growth, Hien is remarkably matter-of-fact about the carrier's achievements. He makes clear, however, that with a domestic population base of around 80 million as well as increasingly positive forecasts for inbound tourist and business arrivals, and government expectations of 7-8% economic growth annually, it has much more to look forward to.

REPORT BY NICHOLAS IONIDES IN HANOI