Dung of capital contribution. Vietjet air was Vietnam’s

Dung Le

ID 1471306

Vietjet Air

OUTLINE

1. Brief summary of the company

2. SWOT analysis

3. Competitive advantage of the company

4. Role of national culture in the company’s strategy

5. Main strategies of the company

6. Types of entrepreneurial pursuits, innovation, and strategic attempts

 

1. Brief summary of the company

VietJet Aviation Joint Stock Company operates under the name VietJet Air, the first private low-cost airline in Vietnam headquartered in Hanoi.

VietJet Air was established by three major shareholders namely T & C Group, Sovico Holdings, and HD Bank, with an initial chartered capital of 600 billion VND (37.5 million USD) at the time of capital contribution. Vietjet air was Vietnam’s fourth airline, after Vietnam Airlines, Jetstar Pacific and Vietnam Aviation Service Company (VASCO) and it is Vietnam’s first private airline.

According to the initial plan, VietJet Air is expected to be officially put into operation by the end of 2008 but due to fluctuations in petrol prices, VietJetAir decided to postpone and will begin in November 2009. Up to now, Vietjet air has been in operation for 8 years.

Vietjet air owns only 45 aircrafts of all types with 29 destinations worldwide. In 2013, at Paris Airshow, VietJetAir signed a principle agreement with Airbus to order a total of 100 aircraft for VietJetAir, of which 62 were ordered and 30 were purchased. plus 8 units with a delivery time of up to 2022 with a total transaction value of $ 9.1 billion.

About Vietjet’s employee, the actual number was not publicised but I estimated that it has over 2,000 employees at the moment.

2. SWOT analysis

A)STRENGTHS

Ø  Vietnam is considered as fastest growing markets in Asia.

The moment Vietjet entered the industry is also at the moment Vietnam is at the height of development. Vietnam is considered one of the fastest growing countries in Asia.

Increased per capita income leads to the demand for enjoyment and tourism. However, trains and cars are too time-consuming and weary of passengers. Aircraft will become the top priority. Although the fourth airline, Vietjet air also has strategies to attract passengers. In the year 2016, Vietjet has been able to transport 52 million passengers including Vietnam and international visitors.

Vietnam aviation market size in annual passengers (millions): 2011 to 2016

Source: CAPA – Centre for Aviation and CAAV

 

Ø  VietJet has quickly captured significant market share

Although the fourth airline after Vietnam airlines, Jetstar pacific, VASCO but Vietjet has a great speed development. Jetstar Pacific is the first airline to have the LCC model in Vietnam, but until 2013 (more than 3 years of operation), Vietjet has occupied 75% of this LCC market.

For Vietnam airlines, the airline does not have too many strategies to attract passengers is Vietnamese, so Vietjet again has a plus point.

Vietnam domestic market share by airline: 2011 to 2016

 

 

 

 

 

Source: CAPA – Centre for Aviation and General Statistics Office of Vietnam.

In 2016 VietJet made up less than 10% share of the Vietnamese international market and a 27% share of the total Vietnamese market. Vietnam Airlines captured a much larger share of the total market because it had larger Vietnam’s international market. However, VietJet is starting to focus more on international expansion and expect to overtake Vietnam Airlines in this area.

.Vietnam total market share by airline: 2013 to 2016

 

Source: CAPA – Centre for Aviation and General Statistics Office of Vietnam.

 

VietJet carried nearly 14 million passengers in 2016, including 12 million in the domestic market. VietJet expects to carry 17 million passengers for the full year in 2017, carry 25 million passengers in 2018, and reach the 30 million milestones in 2019.

VietJet Air annual passenger traffic: 2013 to 2019*

 

 

 

 

Source: VietJet 2Q2017 financial report

Ø  Low unit costs

VietJet is one of the lowest cost airlines in Asia and the world because its CASK is less than 4 cents. If expanding further, Vietjet air will have the opportunity to reduce costs further.

 

Low cost is very important in Vietnam, as it is generally a very sensitive market for very low prices. As competition in Vietnam increases and new LCCs have the potential, VietJet’s scale and low cost will be an important competitive advantage.

According to the report of VietJet’s profit in 2016, profit before tax doubled compared to 2015, reaching VND2,239 trillion (the US $ 106 million).

Ø  Ancillaries

Ancillary revenues, which are a key component for most successful LCCs, have also helped VietJet achieve profitability at an early stage.

In addition to the main revenue, Vietjet also has surcharges from aviation products or associated with other partners, freight services, advertising sales, sky boss service, food and seat selection …

Ancillaries now account for over 23% of VietJet’s revenues in 2017

Ø  Strong local brand and distribution

VietJet has established a strong and recognized brand in Vietnam. According to a study in 2015, Vietjet is a 96% brand awareness airline in Vietnam, with an overall satisfaction rating of 88%.

In addition, in order to enhance VietJet’s position in the domestic market, VietJet is building a loyalty program.

Social media is utilized effectively by Vietjet and the productivity of the network of 1300 agents nationwide has brought success to Tietjen. Two-thirds of the passengers booked airfare through agents, not the internet. Therefore, Vietjet has been and will promote the agent system as much as possible.

B) WEAKNESSES

Ø  JV strategy

Vietjet initially intended to encroach on the Asian market. However, failure is more than success. The only market it can jump to is Thailand with Thai Vietjet Airlines. It took 3 years for Thai Vietjet to go into smooth operation.

In the year 2016, Vietjet sold its majority stake to a Vietnamese investor and it only holds a 9% stake in Thai Vietjet. Currently, Thai Vietjet only transports 3 planes with 3 domestic destinations. The fourth point is set to open in October 2017 but not successful.

All information shows that Vietjet is on the defensive. Joint adventure strategy is not really effective when the number of shares that Vietjet in hand is too small.

 

Ø  Low fares and poor yield management

Vietnam is the world’s cheapest airline and it is cheaper when Vietjet penetrates into the industry.

Vietjet ticket prices are down 17% in FY2015 and up 5% in FY2016. Tickets are usually only high during holidays and Tet holidays. Last summer, Vietjet also reduced 40% ticket price to stimulate demand.

Vietnamese airlines also do not seem to have much interest in pursuing more sophisticated yield management techniques in the domestic market.

The ticket system has not adjusted to limit the possibility of ticket sales. A survey showed that when Vietjet exploited a new destination, this would be at the bottom of the list instead of being sorted alphabetically.

Ø  Weak brand and distribution outside Vietnam

If Vietjet is a relatively strong brand, the foreign market is the opposite.

It will be difficult for Vietjet if you want to expand the market. Vietjet transports an average of 5.6 million foreign visitors to and from Vietnam in one year. And this is the opportunity for Vietjet to hit the international market in the country.

Establishing a brand and developing a distribution market abroad will cost a lot and will face fierce competition from foreign airlines. Foreign airlines have shipped 12 million passengers to and from Vietnam in 2016, up 20 percent from 2015 (CAPA, 2016).

Ø  Sale and leasebacks

VietJet has relied almost entirely on sale and leasebacks since late 2014With 28 aircraft received from Airbus, Vietjet has sold and leased almost everything. This strategy makes an immediate profit, but in the long run, it will no longer work well because partners pay higher rent due to the longevity of the aircraft.

VietJet reported a net profit of VND518 billion (the US $ 23 million based on current exchange rates) from its sale and leaseback in 2015, accounting for 33% of total operating profit (Vietjet annual financial report, 2015). The company achieved a profit of S $ 581 billion ($ 26 million) in H12016, accounting for 41% of total operating profit (Vietjet annual financial report, 2016).

The profitability of Vietjet over the past 3 years (2015-2017) is mainly based on the above strategy with low fuel costs and maintenance. However, in terms of longterm, Vietjet will not keep up with this style by a lot of factors.

C) OPPORTUNITIES

Ø  Tourism and international growth

Vietnam has emerged as a popular tourist destination. Visitor numbers surpassed 10 million in 2016 and were up 26% compared to 2015. Visitor arrivals were up another 30% in the first nine months of 2017, to nearly 9.5 million. Visitor arrivals have more than doubled since 2010 and will likely double again over the next few years. (CAPA, Oct 2017)

Vietnam visitor arrivals and year-over-year growth (%): 2009 to 9M2017

 

 

Source: CAPA – Centre for Aviation and General Statistics Office of Vietnam.

China, the largest and fastest growing source market, Vietnam recorded 51% growth in Chinese visitor numbers in 2016 to 2.7 million. Chinese visitor numbers were up another 48% in the first three-quarters of 2017 to 2.9 million (CAPA, Oct 2017)

Chinese visitor arrivals to Vietnam and year-over-year growth (%): 2009 to 9M2017

 

Source: CAPA – Centre for Aviation and General Statistics Office of Vietnam.

 

Let’s take a look through Vietnam’s top 10 source markets (% of total visitors): 2016

 

Source: CAPA – Centre for Aviation and General Statistics Office of Vietnam.

Ø  Network traffic

Vietnam is geographically favorable to passengers traveling between Southeast Asia and Northeast Asia. However, to meet the land in Ho Chi Minh is relatively difficult because of the location, the layout of the airport and the limitations of the infrastructure. However, the government of Vietnam is setting a new airport for Ho Chi Minh City.

Meanwhile, VietJet is adding international flights to Hanoi and other cities.

This will be the opportunity for Vietjet to expand the international market in the country.

Ø  Interlines and codeshares

VietJet also has a strategy of pursuing interlines and codeshare partnerships.

International airlines are also looking for partners in the Vietnamese market. VN airlines and Vietjet are the two most powerful airlines in Vietnam at the moment. This will be the opportunity for Vietjet to expand and develop. Japan Airlines is considering to choose Vietjet as a long-term strategic partner ( Vietjet 1H2017 report, 2017)

D) THREATS

Ø  New competitions

Discovering the potential of the Vietnamese market, AirAsia and Lion Airlines are planning to find partners in Vietnam. (Vietnam Net, 2017)

A new Vietnam airline named Vietstar is also planning to depart its first flight in early 2018. (Vietnam Net, 2017)

These are major airlines that will attract so many customers. Therefore, in addition to the competition with Vietnam Airlines, Jetstar Pacific Vietjet has more new competitors.

Ø  Slower domestic growth

Vietnam’s domestic market is unlikely to continue growing at the high double-digit rate (20% to 30%) experienced from 2012 to 2016 (CAPA, 2017).

Domestic growth has already slowed in 2017 and is likely to slow further. Slower domestic growth will pressure VietJet, forcing it to rely to a higher degree on the more challenging international market. The possibility of slower domestic growth is particularly a concern, since competition is likely to intensify, including from potential start-ups.

Demand for domestic travel will continue to rise as the population and economy grow. But a number of domestic passengers cannot be maintained.

Ø  Airport congestion

At present, the congestion situation is increasing due to increased travel demand both domestic and foreign passengers, especially holidays.

This outlines the limited infrastructure for every airline, not just Vietjet. However, Vietjet will be more difficult because most of the domestic airports in Hanoi, Ho Chi Minh, Da Nang …, the service area of Vietjet air is usually smaller than Vietnam airlines.

 

Ø  Over-ordering

VietJet could struggle to place the nearly 200 aircraft it has on order. The international market is more promising, and has become a focus for VietJet in 2017, but is highly competitive and challenging. VietJet does not have the portfolios of AirAsia or Lion. It has a strong position in Vietnam, but the Vietnamese market may not be able to support more than 100 aircraft.

VietJet’s decision, in 2016, to order 100 737 MAX aircraft from Boeing particularly raised eyebrows.  The short to medium term fleet plan seems relatively reasonable. VietJet plans to expand its fleet by 14 aircraft in 2018 and by 12 aircraft in 2019. The biggest challenges for the fleet – and the biggest overall threats – will come over the long term.

3. Competitive advantage of the company

Cheap is the only strength of Vietjet compared to competing airlines. Currently, Vietjet is the cheapest airline offering price in Vietnam. The average domestic fare is about 600 thousand VND (nearly $30 ) including tax and other expenses. This price will increase slightly on the occasion of New Year holidays but also ranges from 1 million VND to 2 million VND ($45 – $95). Meanwhile, Vietnam Airlines and Jetstar Pacific offer fares of around 1 million and 200 thousand VND respectively, and it will increase to 3 million VND  ($150) on holidays.

Regarding Vietnamese and foreign tourists to Vietnam, most of them want to choose cheap airline and service not so bad. So, Vietjet will be the top of their mind.

Customers are business people, business people, celebrities, they will choose Vietnam airlines by the quality of service comes with its high prices. However, the number of guests is not much.

4. Role of national culture in the company’s strategy

There are some cultural characteristics affect Vietjet’s strategy:

Ø  Culture to travel, back home on the holidays, Tet.

Vietjet also understands and applies the strategy to attract customers at these times of the year by covering advertising, summer promotions, Tet holidays, national holidays.

Vietjet encourages customers to book 1 to 2 months in advance to get a discounted price. This strategy helps Vietjet to take full advantage of its potential when knowing the number of customers. Moreover, it will also help maximize Vietjet ticket revenue.

Ø  Cheap price orientation

The average income of the majority of Vietnamese people is above average, not too high. Vietjet understands and has hit the customer psychology in Vietnam for many years. Compare to other competitors, Vietjet offers customers the lowest price in the market with the quality of service above average.

In addition, there are many modern means of transportation such as cars, trains, and planes. Most Vietnamese are confused between trains and planes because the cost is relatively equal. However, many people consider train travel safer. Seeing that, Vietjet air has chosen a strategy wise is to offer lower fares than the train (bed tickets). Customers do not seem to have a better choice than airplanes because of low prices and do not spend too much time.

So, among vary domestic airlines brand, customers chose Vietjet Air.

5. Main strategies of the company

Ø  Price Strategy:

Vietjet air is marketed as a cheap airline because it minimizes costs in the following ways:

– Cut down on food service. No fare is charged for the fare but only serves the passenger if required, both reduced fare and serving the right customers, avoiding waste.

– Reduced entertainment services, at least selective onboard aircraft

– Applying science and technology by introducing automatic checkout facilities at the airport, cutting down on the cost of check-in

– Leasing and selling aircraft accounts for nearly half of annual sales

– Reduce training costs, maintenance by using only one Airbus type

Ø  Marketing strategy

– Operating a new aircraft capable of carrying larger numbers of passengers

– Launch 2 -3 promotions “50,000 tickets 0 dongs” in the year.

– 50% savings on big business customers

– Providing all kinds of the promo, eco, Flexi tickets with flexible rates for individual customers who register early.

– A wide range of communication channels: video advertising, outdoor advertising by the banner, poster and leaflet, internet communication using website, facebook …

6. Types of entrepreneurial pursuits, innovation, and strategic attempts

A)To minimize threats

Ø  New competitions:  In order to compete with new competitors, Vietjet air still maintains its exclusive pricing strategy. In addition, Vietjet air also promotes the popular promotions: tickets 0, many kinds of promotions promo, eco, flexi … Combined with customer gratitude program.

Ø  Slower domestic growth: Slow development of the domestic market is a key factor in maintaining the prosperity of the company. Vietnam Airlines is the biggest potential partner in 2018. In addition, the Chinese market is also a big bait that Vietjet air is researching.

Ø  Airport congestion: Facing airport congestion, Vietjet air has launched automated check-in kiosks that no airline has to save check-in time.

Ø  Over-ordering: With the number of aircraft set up, Vietjet plans to continue selling and leasing policies to make a profit. In the long term, this strategy will not work. However, to get the earliest return on investment, this is how Vietjet air needs to be done.

B) To explore opportunities

Ø  Tourism and international growth: The rapid growth in the number of tourists is an opportunity for every airline. Vietjet has also taken advantage of this opportunity to expand its international market by opening destinations in the tourist cities of Nha Trang, Nha Trang, Da Nang, Da Lat. In addition, Vietjet combines the partnership program with restaurants, 4 and 5-star hotels (where customers are mainly foreign tourists) and promote advertising on the media.

Ø  Network traffic: With favorable geographical locations, Southeast Asia and Northeast Asia are the markets that every airline wants to penetrate. Currently, Vietjet Air has routes to Southeast Asian countries such as Thailand, Singapore, Cambodia, Malaysia and routes to East Asia in China, Japan. Vietjet Air is in the process of researching and reviewing the remaining markets

Ø  Interlines and codeshares: To catch this opportunity, Vietjet air is moving forward with the Japan airline and will sign the contract in the first quarter of 2018 (Nguyen, 2017). This will also prove the development of Vietjet air, which is the premise for Vietjet air. building partnerships in the region.

 

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REFERENCES

1. Anonymous, Vietjet Air swot analysis, Centre for Aviation, Oct 2017

2. Vietjet Air 1H2017 Report, p.33, Jul 2017

3. Vietjet Air Annual financial Report, p.38, 2016

4. Vietjet 2Q2017 financial report, p.24, 2017

5. Phan, New competitive in airline industry, Vietnam Net, n.d 2017

6. Nguyen, Vietnamese airlines share the sky, Brands Vietnam, 19 Apr 2017