Vietnamese budget flyer VietJet Air bucks the global aviation trend by posting a small profit for 2020

NGUYEN THI PHUONG THAO   Linh Luong Thai Bloomberg Getty Images
Nguyen Thi Phuong Thao, founder of VietJet

As COVID-19 continues to bring havoc to airline markets across the world, a decade-old budget airline in Vietnam is one of the few carriers to have come out of 2020 in relatively good shape VietJet Air, headed by Vietnam’s first female self-made billionaire Nguyen Thi Phuong Thao, not only managed to get through the year still in profit, it also did so without laying off any staff. In its financial statements, the airline said it earned US$790 million in consolidated revenue in 2020, with an after-tax profit of roughly US$3 million.

VietJet’s experience is in stark contrast to the aviation sector in general, where airlines have been devastated by global travel restrictions. According to the International Civil Aviation Organization (ICAO) passenger traffic numbers fell by around 60% last year, with just 1.8 billion people taking flights compared to 4,5 billion in 2019.

The financial hit to airlines has been huge, with an estimated loss of around US$370 billion. Before the year had even ended as many as 12 airlines had ceased operations, with many more filing for bankruptcy or making significant cuts in expenditure.

Few airlines have managed to avoid the crash. In mid-March, for instance, Hong Kong carrier Cathay Pacific unveiled its worst-ever financial results, with losses of around US$2.8 billion. The airline had earlier been forced to lay off some 8,500 staff, roughly 25% of its total workforce. Similarly, Vietnam’s national carrier Vietnam Airlines made losses of over US$480 million in 2020, and has said it doesn’t expect to be generating profit until 2023 at the earliest.

The success of VietJet Air is undoubtedly grounded in the achievements of Vietnam itself in 2020. Vietnam was Asia’s top-performing economy last year, growing at a rate of 2.9% compared to 2018. Vietnam has also excelled in terms of handling the COVID-19 pandemic. With just over 2,500 infections and only 35 total deaths, Vietnam was able to resume economic activities earlier than most of its Asian counterparts

“Strong national economic performance generally, underpins a solid airline operating environment,” agrees Matthew Findlay of Ailevon Pacific Aviation Consulting (APAC). “The fortunes of many well-run airlines follow or better GDP growth rates – VietJet has benefited in this case from an economy still in positive territory.”

But while a booming economy has given VietJet a leg up, it is only one part of the story. After all, VietJet’s domestic rival Vietnam Airlines has failed to achieve similar results. More important has been how VietJet has innovated its way through the crisis.

A pivot into cargo services

Like all airlines the early part of 2020 was one of uncertainty for VietJet, but unlike many of its competitors the turnaround came sooner than expected. By June it had restarted all domestic flights, and even added eight new routes to its network. Overall, the airline flew more than 15 million passengers in 2020 and domestic air travel fell by just 14% in 2020 compared to the previous year.

Without question, continued domestic demand gave VietJet a strong foundation for recovery, but what really carried the airline through 2020 was its ability to pivot into new business areas, in particular its move into cargo services.

By the end of 2020, the airline said it had delivered more than 60,000 tons of cargo internationally, reporting a 75% year-on-year increase in cargo revenue. This is particularly impressive given that prior to COVID-19, VietJet had no full-cargo aircraft in operation. Instead, passenger craft were reconfigured to enable them to carry goods on the main deck.

The airline also established partnerships with other carriers, which enabled it to extend its cargo network into Europe and the US. In November last year, VietJet announced an air cargo link-up with logistics giant UPS to operate weekly flights from Vietnam to the US, which also signaled the first time a VietJet craft had landed in the US.

This shift into cargo is much more than a temporary fix to pandemic conditions, and VietJet has already said that it plans to build on the mounting demand for cargo transportation. Toward the end of 2020, the airline launched an affiliate company – VietJet Cargo – which reinforced its future commitment to cargo transport. Vietjet Cargo standing vice-president Tran Quang Hoa told Insider that the carrier would continue to diversify its range of cargo services.

“These services will be developed based on our existing products in 2020 which have optimized our fleet and operation and raked in quite a considerable amount of revenue for VietJet in the past year,” he said. “I believe that freight transportation will continue to be our focus sector which brings in breakthroughs and extra revenue for VietJet in 2021.

A new future for aviation

Indeed, the lessons of 2020 look set to play a key role in defining VietJet’s future course. The airline’s success with cargo operations have also accelerated a shift into non-passenger services. Earlier this year, for instance, the company said it had invested into local online delivery platform Swift247 and will in the near future target the express delivery market.

VietJet is also expected to ramp up promotion of its ancillary services, such as souvenirs and in-flight food. In 2020, ancillary revenue accounted for close to 50% of total revenue

VietJet would not be the first airline in the region to open these new revenue streams. In 2020, Malaysia-based budget carrier AirAsia expanded its cargo and logistics division into cross border e-commerce transportation and last-mile delivery. Also last year, AirAsia launched its own digital travel and lifestyle platform and super app, offering non-flight related services such as e-commerce and food delivery.

Ultimately though, what matters for an airline is getting passengers on seats, and once international routes open up, analysts expect VietJet to expand further its overseas operations, helped no doubt by its positive financial performance in 2020.

“Asian nations have dealt with COVID-19 better than other nations and regions, so an expected return to travel for VietJet will come, benefiting the airline and ensuring its success,” Findlay says. “Wealthy Asian markets will be tempting focus areas for expansion as they focus on core historical visitor markets, while the back-order of aircraft that offer the opportunity to fly further in more economical and lower cost aircraft provides scope for growth into new and existing markets.”

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