VietJet starter opp i Thailand

VietJet Low-Cost Offshoot Enters Crowded Thai Market

by Jennifer Meszaros

 - January 6, 2015, 5:00 AM

Shown is a VietJet Air Airbus A320. The airline's Thai offshoot will begin operations this year. (Photo: Flickr: Creative Commons (BY) byDuong Pham Photography)

Thai VietJet Air (TVJA), the Thai offshoot of Vietnam’s no-frills carrier VietJet Air, is preparing to launch in the first quarter this year, joining the country’s highly competitive low-cost carrier market.

The new start-up, which is 51 percent owned by Thailand’s Kannithi Aviation and 49 percent by VietJet Air, obtained its air operator certificate on December 20 from the Thai Civil Aviation Department. TVJA will initially operate one Airbus A320-200 on domestic routes from Suvarnabhumi Airport before adding an additional three to five Airbus jets annually. Plans are afoot to launch international services in the near future.

TVJA’s entry has some airlines worrying whether the market can sustain another low-cost carrier. “Thailand has a very extreme case of overcapacity and everyone is suffering at the moment,” said Narudh Cheramakara, a consumer intelligence manager with Nok Airlines. “The main problem is the competition. I think someone has to go and possibly in four to five years.”

Indeed, three of the country’s top airlines—Thai Airways, Thai AirAsia and Nok Air—saw a sharp decline in profits in 2014. Only Bangkok Airways remained profitable thanks to its diversified partnerships. Meanwhile, the political instability of 2014 further exacerbated an already precarious situation for the industry, which has seen a slump in passenger numbers.

Nowhere is this felt more than at Thai Airways, which has been in the red since the second quarter of 2013. The national flag carrier, which has traditionally banked on long-haul routes to North Asia, Europe and Australia, is being pushed out of the market by the rise of Gulf carriers in the region. “We have Etihad, Qatar Airways and Emirates all serving Thailand. Emirates has about four flights per day while Bangkok is the largest destination for Etihad in terms of capacity,” said Cheramakara. “Effectively, Thai Airways’ long-haul markets are done.”

Blaming political instability, Thai AirAsia plans to expand in the domestic market this year to make up for losses in international markets. The carrier is expected to post the largest profit decline in its 10-year history, from $57.7 million in 2013 to $6.1 million in 2014.

Meanwhile, Nok Air, which relies heavily on domestic demand, will remain under siege from price wars. The carrier faces heightened competition, especially from Thai Lion Air, which recently began operating on some of Nok’s biggest routes.

With the pace of recovery in Thailand’s economy and tourism sectors slower than expected alongside TVJA’s anticipated entry, Thai carriers are in for a turbulent year.