Vietnam Airlines Admits They’d Lose Money Flying To The US, Plans To Do So Anyway

Airline executives tend to be overly optimistic about the routes they plan on launching, so it’s not unusual to hear them say that they’re going to be announcing a new route shortly, and then it doesn’t actually happen. Last August I wrote a post about seven rumored ultra longhaul flights to the US, along with the status of them. We’re talking routes like Kigali to New York on RwandAir, Jakarta to Los Angeles via Japan on Garuda Indonesia, and more.

Ultra longhaul flights are notoriously difficult to make money on, though they’re becoming more feasible than in the past. That’s thanks to planes like the 787 and A350, which have a long range and are low capacity, which allows airlines to maximize yields. There’s one very important consideration, though — in order for an ultra longhaul flight to be profitable, there needs to be demand from business travelers. For the most part leisure travelers are looking for the lowest fares, and while a nonstop flight sounds nice, they’ll typically take an option with a connection if it’s even just marginally cheaper.

Vietnam Airlines has repeatedly stated that they want to launch flights between Ho Chi Minh City and Los Angeles using the Airbus A350-900, though as of now nothing official has been announced yet. Reuters ran a story about how Southeast Asian airlines are looking to launch nonstop flights to the US despite profit challenges, and the story has some remarkably honest quotes from Vietnam Airlines’ CEO, Duong Tri Thanh.

Essentially he says that making money flying to the US will be nearly impossible, but that they’re trying to balance the government’s desire for growth with what’s in the airlines’ best financial interest:

“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.”

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.

Those quotes sound like that they could just as easily be coming from the CEO of a Gulf carrier. Then again, Vietnam Airlines is majority owned by the government, so I guess that shouldn’t come as much of a surprise. So, what’s the plan as of now? Vietnam Airlines wants to start flying to the US by the end of 2019:

“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.”

I don’t remember the last time I’ve seen an airline CEO be so honest. He’s basically saying that this route is a recipe for losing money, that they lose money on most of their longhaul routes, but that they still do it for the sake of the country. That might sound crazy, but this is more common than you’d think…

Do you think Vietnam Airlines will follow through on launching flights to the US?

(Tip of the hat to Live and Let’s Fly, featured image courtesy of Long Nguyen)

Comments

  1. I’m not complaining. The lack of a direct flight from LAX is the one thing stopping me from going to SE Asia. Not in a high desire to go there so I’m waiting for when travel is easier. Yeah, I’m really spoiled with nonstops lol.

  2. Singapore Airlines acts like a state airline (because it basically is). Their fares to Singapore from most parts of the globe are far cheaper than the same round trip originating in Singapore. Thus, Singapore residents are subsidizing foreign travelers by way of much higher airfares to spur tourism. If Singapore residents don’t like this (and they shouldn’t), they should vote with their wallets and fly other airlines of similar quality (like Qatar, Emirates, Etihad) that are much cheaper. Otherwise, SQ will continue to exploit their patriotism for profits.

  3. I think they will follow thru. As stated before, VA is a majority state-owned company and there relations/cooperation between Vietnam and the U.S. have significantly improved over the last 5 years so it makes sense.

  4. They would do better to fly a 1-stop service, develop a more useful hub, and market themselves on service/quality/loyalty in addition to having an attractive price for their country’s passengers. Rather than creating an unsustainable route for the vanity of having the non-stop (which will cease in about 1 year). If SQ/UA/etc can barely make these kinds of flights break even, what hope do they have?

  5. Rumour has it that the Japanese authority has denied the original plan of JKT-NRT-US by Garuda. But they are still planning to fly to the US via TPE or ICN anyway. Same for VN. SGN-TPE-LAX is something pending the governments’ approval. (BTW, flying via TPE is almost identical to the “Great Circle” of SGN-LAX)

  6. Nice find. A CEO sending a not so subtle message to its political overseers. He must be vert frustrated.

    Vietnam doesn’t have Open Skies agreements so the air travel market is completely unbalanced.

  7. @Donald Osborne : no idea where your rant is coming from. SIN has multiple LCCs hubbed there, and the nation is also rather liberal with bilateral traffic rights and 5th freedom rights, so no one at SIN is ever forced to fly SQ because there’s no fortress hub to speak of.

    My ex-classmates currently doing i-banking in Singapore fly SQ J even when presented with good alternatives choices, so clearly it’s a lot more than some “patriotism” BS you’re touting.

    Sounds more like you have some bitter ax to grind against SQ.

  8. Jake nailed it. This was a message to VN govt. The guy is probably in the middle of slow negotiations for a subsidy package to make the flights happen. Will he succeed? Will we see VN @LAX? Now we’re predicting the whims of political central planners in VN. I’ll pass haha.

  9. I wonder if Garuda flew into SEA if that would make more sense. DL could provide all the lift from there on.

  10. VN is impossible to make money on this route since BR and CI are way more competitive and convenient to most Vietnamese.

  11. The relationship between partially private and partially state owned enterprises in Vietnam is complicated. There are many stories of money losing ventures done for the sake of some government official’s brilliant idea. The agriculture market has collapsed a couple times because of these ideas. So it’s not that surprising.

  12. I think they’ll follow through. What is rarely mentioned in these situations are the soft benefits of having a VN tail present at airports. It’s a flying billboard. Sure, they’re losing money or not realizing hard benefits from the route, but they’re advertising their airline and their country nonetheless. There’s something to be said about ambassadorship of the airline independent of the financial gains.

  13. @chub, I believe CASM would actually be better with the longer flight down to LAX as opposed to SEA, you still get a strong (and growing stronger) DL hub in LAX and thats where the majority of vietnamese-americans reside, not in SEA, which is more of a driver here than just simply flying to the US.

  14. As the CEO stated there won’t be enough business demand for this route.
    However, SGN saw a 6 million passenger increase from 2015 to 2016. They are in the process of building a new airport with runways capable of handling an a380 to be completed between 2025 and 2035. The top 3 international destinations are Singapore, Bangkok, and Kuala Lumpur with Taipei being a distant 4th.

  15. @Thanh: TPE is exactly on the route form Vietnam to US. BR and CI have more US destinations and better service. Vietnamese with 2 passports need a third country to switch passports. The most important thing is cheaper than VN.

  16. Wish US carriers thought the same way rather than the only three words stuck in their executives’ heads “revenue”, “investors”, “nickel-and-diming”

  17. @creditian lol, VN non-stop and Vietnamese speaking FAs are less convenient for “most” Vietnamese? Most Vietnamese resides in So Cal and don’t hold Vietnamese passport (refugees). Given the choices VN wins.

  18. Ben Schlappig (aka Lucky) is a travel consultant, blogger, and avid points collector. He travels about 400,000 miles a year, primarily using miles and points to fund his first class experiences. He chronicles his adventures, along with industry news, here at One Mile At A Time.

    …..however he has yet to review VN A350 long-haul Business Class.
    Either that or no comp room at the Metropole Hanoi.

    Visa issue?

  19. @Matt – for what it’s worth, if you really want to go to SE Asia on a non-stop flight, PAL offers a twice daily service from LAX to MNL. Just make sure not to book flights on their A343s – the cabin is outdated and terrible.

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