SINGAPORE (Reuters) - Vietnam Airlines JSC will struggle to be profitable on non-stop flights between Vietnam and the United States due to a lack of demand from business travelers, but it may launch them anyway as early as next year, the carrier’s CEO said on Monday.
Duong Tri Thanh, and his counterparts at other state-controlled Southeast Asian carriers such as Thai Airways International PCL and Malaysia Airlines, are trying to balance government desires for growth with what is best for the airlines’ financial health in a competitive market.
“The philosophy of the company is to help the economy and try to be viable and profitable,” Thanh told Reuters on the sidelines of a conference ahead of the Singapore Airshow.
“But growing the economy is more of a mandate. You can see on most of the intercontinental routes we are not making money. But we are helping to get people in and out.”
The market for flights between Southeast Asia and the United States is highly competitive and consists mostly of options involving a stop in North Asian or Middle Eastern countries due to the distances involved.
There are exceptions; due to geography Philippines Airlines has a slightly shorter, more economical hop to U.S. west coast cities, while Singapore Airlines Ltd launched 17.5 hour non-stop flights from its Singapore hub to San Francisco last year.
The Singapore carrier plans to resume even longer flights to Los Angeles and New York later this year after a five-year hiatus, helping to close a gap in its U.S. capacity relative to competitors like Cathay Pacific Airways Ltd and Emirates.
New technology, such as Boeing Co 787 Dreamliners and Airbus SE A350s jets that have longer ranges and are more fuel-efficient than their predecessors have improved the economics of such flights, which were abandoned by Singapore Airlines, Malaysia Airlines and Thai Airways when the fuel price rocketed earlier in the decade.
“Those are very finely balanced as to whether they are viable based on fuel prices and load factors and the mix of customers,” Association of Asia Pacific Airlines Director-General Andrew Herdman said.
Singapore Airlines has a reputation for quality and a substantial amount of business travel to and from the city-state, improving its ability to configure aircraft with a high number of premium seats and charge more than one-stop competitors, according to analysts.
“With Vietnam, Thailand, Malaysia you simply can’t get away with charging the premium needed compared to the one-stops, which are now very aggressively priced, due to the intense competition in the Southeast Asia-U.S. market to make the non-stop flights profitable,” said Brendan Sobie, chief analyst at CAPA Centre for Aviation.
Thanh said his airline benefited from a diaspora of 2 million Vietnamese living in the United States, but most of the traffic was more likely to be driven by price rather than the convenience of saving a few hours of travel time.
“It is quite a big headache, to be honest,” he said, of coming up with a viable business plan for the flights.
“The plan is the end of 2019. But if it is not feasible and it is too much we have to wait to find a way to work with partners to improve the traffic mix. Like most of the airlines, like Philippines and Thai, we don’t have enough business travelers. We are just dependent on visiting friends and relatives. That is no way to make money.”
Reporting by Jamie Freed; Editing by Mark Potter