SOLVAY: STRATEGY & CORPORATE GOVERNANCE

CASE STUDY
VIETJET AVIATION JOINT STOCK COMPANY (“VIETJET”)

VietJet was established on July 23rd, 2007, however the first commercial flight from Ho Chi Minh City to
Hanoi took off on December 24, 2011. VietJet has made remarkable progress since then.
VietJet launched its first international flight route from Ho Chi Minh City to Bangkok (Thailand) in
2013. VietJet entered a deal for 200 aircraft from Airbus in 2014. In 2016, VietJet officially became a member
of the International Air Transport Association (IATA) and ordered 20 additional new-generation A321 aircraft
with CEO and NEO engines from Airbus as well as signed a cooperation agreement for establishment of an
aviation training center with Airbus. The company was listed on Ho Chi Minh City Stock Exchange and
commenced VietJet Aviation Academy project in 2017. In 2018, it signed a memorandum of understanding for
long-term engine maintenance support services with CFM International and signed a $ 7.3 billion agreement
with Safran - CFM, GECAS in France. In 2019, the company reached the milestone of 100 million domestic and
international passengers and a total of 139 air routes including 44 domestic and 95 international. The fleet was
raised to 78 aircrafts with average age of 2.82 years old. In addition, VietJet signed an agreement to purchase
20 new-generation A321XLR aircrafts with Airbus.
As ranked by Ho Chi Minh City Stock Exchange, VietJet’s stock (VJC) was among 20 stocks with sustainable
development index for the period of August 5th, 2019 to July 31st, 2020. VietJet was also in the top 100
enterprises contributing most to the State budget. VietJet was also considered an enterprise with best
corporate governance - financial capacity on Vietnamese stock exchange, Nhip Cau Dau Tu (Business Review)’s
top 50 most efficient companies in the country, Forbes Magazine’s 50 best listed companies in Vietnam.
In the context of this case study, we consider the macro environment as well as the domestic and foreign
aviation markets and domestic competition landscape. In addition, we also analyze VietJet’s development
strategy. For details of the VietJet Case Study, please see the following pages.
Below are some questions related to the case study:
1. Describe the key macro elements of Vietnam's business environment affecting the
aviation industry and VietJet.
2. Describe the Asia-Pacific aviation market and Vietnam's aviation market.
3. Describe the domestic aviation industry with major airlines.
4. Analyze the Low Cost Carrier (LCCs) strategy adopted quite successfully by VietJet.

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TABLE OF CONTENTS
Contents
I. MACRO BUSINESS ENVIRONMENT ....................................................................................................... 3
1. ECONOMIC ENVIRONMENT .............................................................................................................. 3
1.1 GDP and FDI Growth ................................................................................................................. 3
1.2 Inflation ..................................................................................................................................... 3
1.3 Interest rate .............................................................................................................................. 4
1.4 Fluctuations of Vietnam dong against foreign currencies ........................................................ 4
2. SOCIAL ENVIRONMENT ..................................................................................................................... 4
2. 1 Rates of population growth and urbanization .......................................................................... 4
2.2 Labor source.............................................................................................................................. 5
3. LEGAL ENVIRONMENT ...................................................................................................................... 5
3. TECHNOLOGICAL ENVIRONMENT ..................................................................................................... 6
II. AVIATION MARKET ................................................................................................................................ 6
1. ASIA-PACIFIC AVIATION MARKET...................................................................................................... 6
2. DOMESTIC AVIATION MARKET ......................................................................................................... 6
2.1 Economic growth and air travel in Vietnam ............................................................................. 7
2.2 Travel time by mode of transport ............................................................................................. 7
3. VIETNAMESE AVIATION DEVELOPMENT OUTLOOK.......................................................................... 9
3.1 Key factors for development of Vietnam's aviation industry ................................................... 9
3.2 Aircraft fleet development prospects ..................................................................................... 10
3.3 Key factors putting pressure on Vietnam's aviation industry ................................................. 11
III. DOMESTIC AVIATION INDUSTRY ..................................................................................................... 11
1. DOMESTIC AIRLINES ........................................................................................................................ 11
2. COMPARISONS OF TWO LARGEST AIRLINES ....................................................................................... 12
IV. VIETJET'S POSITION IN THE INDUSTRY................................................................................................... 15
V. VIETJET'S BUSINESS DEVELOPMENT STRATEGY AND OBJECTIVES ......................................................... 18
REFERENCES ................................................................................................................................................ 20
APPENDIX .................................................................................................................................................... 21

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I. MACRO BUSINESS ENVIRONMENT

1. ECONOMIC ENVIRONMENT
1.1 GDP and FDI Growth
The macroeconomic factors play an important role in the businesses’ growth. Operational performance and
business prospects require businesses to promptly adapt to fluctuations of the business environment
factors. The macro environment analysis aims to assess the impacts of risk factors on the growth strategy and
assurance of the business operations.
As part of the economy, operations of the airlines have always been associated with economic growth rate. The
gross domestic product (GDP) in 2019 achieved impressive results with the growth rate of 7.02%. The main
drivers of economic growth in 2019 continued to be the processing and manufacturing, increased by
11.29% thanks to steady investment inflows from multinational corporations, and market service industries
such as transportation and warehousing with growth rate of 9.12%; retail and wholesale increased by
8.82%; finance, banking and insurance increased by 8.62%.
Looking back over the past 20 years, aviation growth has closely linked to GDP growth. That means 1% GDP
increase has resulted in 1.5 to 2% increase in aviation. On the contrary, if GDP reduced by 1%, aviation would
suffer similar decrease.
Vietnam has also completed negotiation for a number of important free trade agreements, such as EVFTA and
UKVFTA or RCEP as well as CPTPP, thus foreign direct investment (FDI) inflow is expected to continue to be
poured into Vietnam. According to data from the Ministry of Planning and Investment (MPI), as of December
30th, 2019, FDI in Vietnam including newly and additionally committed capital and capital contribution by
foreign investors via stock exchange was USD 38 billion, increased by 7.2% over the same period in 2018. This
was also the highest number over the last 10 years. Korea still leads with total investment capital of USD 7.92
billion, accounting for 20.8% of total investment capital. Hong Kong ranked second with total investment of
USD 7.87 billion (of which, USD 3.85 billion was for the purchase of shares in Vietnam Beverage Co., Ltd. in
Hanoi, accounting for 48.9% of total investment capital from Hong Kong). Singapore ranked third with a total
committed investment capital of USD 4.5 billion, followed by Japan and China.

According to IATA data, Vietnam's aviation market enjoyed the third fastest growth rate globally with an
average growth rate of 16.6% annually during the period of 2001 - 2014. In IATA’s 2016 outlook report, it was
forecasted that Vietnam would become the world’s 5th fastest growing aviation market, reaching 150 million
passengers by 2035

1.2 Inflation
Inflation is a macro factor that can affect on the entire economy, significantly affecting the economy in general
and the airline companies in particular. The inflation rate that is curbed in accordance with the overall
macroeconomic operation targets serves as the basis for the loosening financial and monetary policies during
the year, and at the same time interest expenses and bond yields are expected to be lower to increase access
to the finance needed for business expansion. To limit the risk of price slippage, the airline companies has
flexibly adjusted fares, surcharges, and ticket classes to fully offset the increased costs while keeping the fares
within the permitted price ranges.

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1.3 Interest rate
Apart from inflation, interest rate is a very important financial indicator to be tracked and updated daily by the
airline companies to make appropriate investment strategies. Not every business has a large enough amount
of capital for business operations, the majority have to mobilize funds from external sources in which a popular
channel is through loans, and bear loan interests. When interest rate increases, it will directly affect the
enterprises’ business. Interest rates is forecasted to remain low as deposits have grown faster than credit
growth since February 2016, along with the fact that the State Bank of Vietnam (SBV) has purchased United
States dollars this year, resulting in a surplus of funds and USD funds for lending.
The airline companies have mainly used loans from domestic and foreign banks to purchase new aircrafts. The
providers of credit to the airline companies have been long-time partners, thus the airline companies has often
enjoyed preferential policies on interest rates.
1.4 Fluctuations of Vietnam dong against foreign currencies
The fluctuation of Vietnam dong against foreign currencies, particularly USD, may adversely affect the
Company’s business operations, financial position and prospects because while the airline companies
maintained its accounts in VND, many of the company's expenses, for example, part of its fuel costs, aircraft
lease payments, or part of maintenance payments have been in USD. Historically, Vietnamese dong
continuously has depreciated against the US dollar. Since the last quarter of 2008, Vietnamese dong has faced
significant depreciation against the US dollar due to the trade deficit.
The State Bank of Vietnam officially changed to a new exchange rate regime, where the rate is pegged to three
benchmarks: demand and supply of the Vietnam dong, the exchange rates for a basket of foreign currencies,
and for any changes to manage macro-economic situation. Vietnamese Dong is generally not freely convertible
and transferable. There is no guarantee that SBV's policy on floating rate management will not change, or that
VND depreciation will not occur, or that the Government will take measures to stabilize, maintain or increase
VND value, or any of these policies, if implemented, will be successful. If the US dollar appreciates against VND,
it will lead to an increase in fuel costs and aircraft lease costs and possibly affect the profitability of the airline
companies.

2. SOCIAL ENVIRONMENT
2. 1 Rates of population growth and urbanization
Population growth in countries that have experienced strong economic growth will lead to an increase in
demand for air travel.

The rate of urbanization can be considered a signal of air travel trend because urban residents have higher-
than-average income and are more likely to reside near the airport than rural residents. According to the United
Nations, Vietnam had an urbanization rate of 33% in 2014, and is expected to increase to 54% by 2050. As
urbanization takes place in Vietnam, it is estimated that the demand for air travel will increase. Urbanization
in Vietnam can be a significant contributor to the growth of air travel demand when compared to other
countries due to the geographic divide between Vietnam’s two largest urban centers of HCMC and Hanoi.

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 Population and urbanization rates in Southeast Asian countries
Population (million
Urbanization rate (%)
people)
Country
2014 CAGR 2015-2020 2014 Projected 2050
Vietnam 90. 6 1.0% 33.0% 54.0%
Brunei 0.4 1.6% 47.0% 64.0%
Cambodia 153 1.5% 21.0% 36.0%
Indonesia 251.5 1.4% 53.0% 71.0%
Laos 6.9 1.9% 38.0% 61.0%
Malaysia 303 1.7% 74.0% 86.0%
Myanmar 51.4 0.7% 34.0% 55.0%
Philippines 99.4 2.0% 44.0% 56.0%
Singapore 5.5 0.6% 100.0% 100.0%
Thailand 68.7 0.1% 49.0% 72.0%
Total/Average 620.0 1.3% 49.3% 65.5%
Source: International Monetary Fund

2.2 Labor source

The current workforce of the aviation industry has not yet sufficiently developed in terms of quantity and
quality to meet its business requirements. In parallel with the renewal of the flight crew and aviation technical
equipment, the airlines have tried to have a younger workforce with better professional expertise, especially
specialized team such as pilots, flight attendants, engineers and aircraft technicians are well developed with
the goal of gradually reducing the number of foreign workers, particularly pilots.

Regarding labor quality, average age of the airline labor force is 37, with staff under 40 years old accounts for
65.3% of the workforce. The proportion of employees with university and post-graduate degrees is
58.8%. Management staff have been professionally trained to have solid knowledge, expertise, and
experience. Most employees of the airlines such as: pilots, aviation technicians, flight attendants, and
management staff have deep expertise, high skills, and enthusiasm.

3. LEGAL ENVIRONMENT

Legal risk is the risk arising from failure to timely and properly follow regulations and law during the course of
business operations of aviation companies. As public joint stock companies operating in the field of aviation,
the company’s operations are governed by the laws of the State, including the Law on Enterprises, Law on
Securities, Law on Civil Aviation of Vietnam and other legal documents related to the company’s business lines.

Currently, Vietnam's legal system is not yet stable and consistent, and supplementary guiding documents are
still under development and finalization, thus their potential amendments and supplementation may affect the
Company’s operations. In addition, the aviation industry is strictly controlled by the laws. The companies’
licenses permit must always ensure continued compliance with the rules and regulations, including new ones
to be adopted in the future. Changes of the rules and regulations in the future may change the ways they
operate and/or their business strategies to maintain their operating licenses. Besides, legal changes may
adversely impact their costs, flexibility, marketing strategies, business models and operational scalability. For

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example, the authority may restrict operations of the airports that are used by the airlines, such as restrictions
on landing and takeoff hours and times, noise levels, mandatory air routes, runway restrictions, restrictions on
daily departures.

3. TECHNOLOGICAL ENVIRONMENT
. According to the Digital Report 2020 of We are social, Vietnam had 96.9 million people; the number of mobile
subscribers was 145.8 million (accounting for 150% of the total population of the country); number of internet
users was 68.17 million (accounting for 70% of the total population); number of social network users was 65
million (accounting for 67% of the total population). This is the foundation for the company to develop its e-
commerce system based on the increasing customer database.

II. AVIATION MARKET

1. ASIA-PACIFIC AVIATION MARKET
According to IATA, the Asia-Pacific region became the largest international aviation market in the world since
2009. Since then, the region has grown rapidly, with the number of travelers traveling within the region
increasing from 647 million in 2009 to more than 1 billion in 2015, accounting for nearly 30% of the world’s
airline operations in terms of ASK1. The region is also projected to continue to grow strongly in the future with
CAGR of 6.0% for the period of 2015 - 2035 in accordance with Boeing analysts’ forecasts.
The rapid growth of the Asia-Pacific aviation industry has been thanks to various factors, including strong
economic development in these regional countries, and increase in household income pushing spending for
travel, as well as efforts to liberalize the market as Open Skies Policy, facilitating the establishment of low-cost
carriers which positive influencing the air travel in the region.

The aviation industry in Southeast Asia has witnessed rapid growth rate thanks to several factors:

• Rapid economic growth in Southeast Asian countries with average GDP growth rate of more than 5% and
a growing middle class with high disposable income, and increase in household income pushing spending
for travel;
• The majority of Southeast Asian countries have approximately 35% - 45% of the population in the working
age (from 25-54 years old);
• Strong growth of the tourism industry in Southeast Asian countries;
• Policies to liberalize and open the regional aviation markets as Open Skies, facilitating the establishment
of low-cost carriers;
• Strong growth of low-cost carriers with the introduction of many low-cost carriers in the region.

2. DOMESTIC AVIATION MARKET

According to IATA, Vietnam was the world’s third fastest growing aviation market during the period 2001-2014
with an average growth rate of 16.6%.
International departing and arriving tourists in some Southeast Asian countries (2010 - 2015)

1
Available seat kilometers - is a measure of an airline’s passenger carrying capacity. It is equal to the number of seats
available multiplied by the number of miles or kilometers flown.

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 International tourists (thousand people)

Country Arriving Departing

CARG CARG
2010 2015 2010 2015
2010-2015 2010-2015
Indonesia 7,003 10,407 8.2% 7.074 9.129 5.2%

Malaysia 24,577 25,736 0.9% 12.180 15.447 4.9%

Philippines 3,292 5,158 9.4% 5.247 7.353 7.0%

Singapore 14,213 17,691 4.5% 18.601 20.185 1.6%
Thailand 16,614 29,881 12.5% 6.323 9.961 9.5%

Vietnam 4,545 7,149 9.5% 3.191 6.095 13.8%

Source: Euromonitor

During the period of 2018-2040, Airport Council International (ACI) forecasts that Vietnam will experience the
fastest air passenger growth rate in the world with an average annual growth rate of 6.2%. Vietnam has an
advantage of holding a strategic position in the Southeast Asian region, a strategic hub that allows the flight of
narrow-body aircrafts to all major cities in North Asia, Southeast Asia, and India, with average flight time of
about 5 hours from Ho Chi Minh City or Hanoi. Tourism and air travel in Vietnam have experienced the
strongest growth rates compared to other countries in Southeast Asia in terms of the number of departing and
arriving visitors. The number of domestic passengers in Vietnam increased at CARG of 13.7% from 2011-2014,
while international passengers increased at CARG of 9.8% during the same period.

2.1 Economic growth and air travel in Vietnam

Vietnam and neighboring Southeast Asian countries have experienced strong growth during the past 10
years. As a result, airlines have benefited from the increased demand for air travel. According to SAP analysis,
per capita air travel in Vietnam is fundamentally low compared to developed countries and other developing
countries in the region. This means that Vietnamese aviation market is still very potential. With Vietnam's low
per capita GDP, at $2,053 compared to ASEAN average of $9,159 in 2014, Vietnam has the opportunity to
develop air transportation when per capita income increases.

2.2 Travel time by mode of transport

Due to Vietnam's geographical features of stretched, narrow, hilly and mountainous terrain, it is inconvenient
to travel by road. Combined with the lack of high-quality road and railway infrastructure connecting populated
regions between the South and the North, air travel with shorter time, gradually reducing travel costs thanks
to the rapid growth of the low-cost carrier market, has become a more attractive and efficient choice of travel
compared with land transportation. This is reflected in the growing market share of air transport as a means
of transport from 43% in 2010 to 54% in 2014 according to SAP data.

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 Air passenger volume in Vietnam (million passengers)

Number of domestic passengers Number of international passengers

Domestic passenger YOY % (RHS) International passenger YOY % (RHS)
Source: ACV, Rong Viet Securities

According to Rong Viet, total air passenger volume increased by 12% in 2019 compared to the same period
in 2018 and reached approximately 116 million. Although the international passenger growth rate continued
to be higher than that of domestic passengers, the difference between the two markets has narrowed. The
growth rate of domestic passengers is estimated at 11%, a sharp increase from 6% in 2018.

Rong Viet believes that this may be driven by the new supply from Bamboo airway, after many years the
existing domestic airlines (VietJet Air, Vietnam Airlines and Jetstar Pacific) have no longer focused on
developing the domestic market. In contrast, the growth rate of international passengers slowed down slightly,
with an increase of 14% in 2019 compared to 21% in 2018. Though this rate is similar to the growth rate of
foreign tourist arrivals in Vietnam by air of 15% in 2019, Rong Viet believes that this slowdown is also influenced
by the low international passenger growth rate at Tan Son Nhat Airport (SGN) which accounts for more than
40% of Vietnam's international passengers, estimated at only 5% YoY.
• Choosing to travel by plane over other means of transport is made due to Vietnam's topography, which
makes traveling between major cities, such as from Ho Chi Minh City to Hanoi, quite time consuming.
• Traveling by road or rail from Ho Chi Minh City to Hanoi takes more than 30 hours while traveling by
air only takes about 2 hours.
• The fares for the different modes of transport are about the same, in which the travel by train is most
expensive, and the bus fares are just below the average air fares.
Along with the development of the aviation industry and the open-door economic policy, governments,
including Vietnam’s, are forced to gradually loosen domestic and state-owned enterprise protection measures.
Incentives for FDIs, incentives for private airlines and foreign joint ventures have been strongly increased. Low
Cost Carriers ("LCCs") have increasingly expanding their operations on all international and domestic
routes. Competition continues to increase not only in the domestic market but also in the international
market. Competition on routes between Northeast Asia and Vietnam has increased as domestic LCCs also open
flights to the Northeast Asian market. In addition, the traditional airlines in Northeast Asia have also
accelerated the introduction of associated LCCs to operate on the routes between Northeast Asia and
Vietnam. The fierce competition of low-cost carriers (LCCs) for the low-income segment increases the risk of
market share decline for traditional airlines. In the ASEAN market, the Open skies policy in ASEAN and joint

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venture and cooperation between low-cost carriers in the region and domestic airlines to exploit Vietnam’s
domestic market increases competition in Vietnamese market.

Travel time by transportation mode

Time (hour)
Mode of transportation
HCMC- Ha Noi HCMC- Da Nang
By plane 2:05 1:20
By car 35:00 15:30
By train 34:00 17:00
Source: Company

Average fare by transportation mode

Average fare
Route
Road Air Rail
HCMC – Da Nang 405,458 615,000 616,833
HCMC – Ha Noi 861,385 961,000 1,066,278
Source: Company

3. VIETNAMESE AVIATION DEVELOPMENT OUTLOOK

3.1 Key factors for development of Vietnam's aviation industry
According to forecast by the Airport Council International (ACI), Vietnam will have the fastest air passenger
growth rate worldwide during the period of 2018-2040 with an average Y-O-Y growth rate of 6.2%. In fact, the
aviation industry benefits from many favorable factors such as the rise of the middle class and the growth of
low-cost carriers, making air travel increasingly easier. Besides, the government’s efforts to promote tourism
along with the expansion of international flight networks by domestic airlines are expected to further increase
air passenger growth rate in international flights.
Forecast of Vietnam's aviation market growth during the period of 2018-2040

0% 1% 2% 3% 4% 5% 6% 7%

Vietnam 6,2%
India
Saudi Arabia
Philippines
Indonesia
Colombia
UAE
Mexico
China
Malaysia Source: ACI

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The main factors of this impressive growth include (i) significantly improved airline infrastructure, (ii) strong
growth of the tourism industry, leading to the development of a lot of hotels, resorts and tourism-related
facilities, turning Vietnam into an attractive tourist destination help aviation industry grows rapidly, and (iii)
rapid urbanization.
• Vietnam's aviation infrastructure has significantly improved in recent years: During the period of 2011-
2015, many projects have been carried out in the aviation industry with investment in the airports of over
VND 24 trillion funded by the State budget, government bonds, ODA, funds for major repair and
development investment. Typical projects included project for construction of new international passenger
terminals - Danang International Airport, Cam Ranh International Airport, project for new construction of
Van Don Airport.
• Vietnam's tourism industry is expected to continue its impressive growth rate in the future: According to
the project for "Master plan for Vietnam’s tourism development until 2020, vision until 2030", Vietnam
will attract 10.5 million international visitors by 2020, serving 47.5 million domestic visitors; attracting 18
million international visitors and 71 million domestic passengers by 2030. Total revenue from the tourism
industry will reach USD 18.5 billion by 2020, accounting for 7% of GDP; USD 35.2 billion, accounting for
7.5% of GDP by 2030. Under the project, it is forecasted that the tourism industry will achieve an average
revenue growth rate of over 30% and visitor growth rate of 20%.
Forecast of international tourists to some Southeast Asian countries
Country 2016 2020 CAGR 2015-2020
Indonesia 11,193 14,907 7.5%
Malaysia 28,306 35,811 6.8%
Philippines 5,605 7,115 6.6%
Singapore 18,709 24,274 6.5%
Thailand 32,272 41,982 7.0%
Vietnam 7,748 10,446 7.9%
Total 103,833 134,534 7.0%
Source: Euromonitor

• High urbanization rate: According to the United Nations, Vietnam had an urbanization rate of 33% in 2014,
and is expected to increase to 54% by 2050. As urbanization takes place in Vietnam, it is estimated that the
demand for air travel will increase. Urbanization in Vietnam can be a significant contributor to the growth
of air travel demand when compared to other countries due to the geographic divide between Vietnam’s
two largest urban centers of HCMC and Hanoi.

In a nutshell, with the bright outlook of Vietnam's aviation industry, the low-cost air transport is expected to
benefit most because low-cost carriers can increase their market shares by offering services at cheaper prices
than traditional airlines. Currently, LCCs only account for 51.6% of domestic seat capacity and 17.1% of
international seat capacity in Vietnam.
3.2 Aircraft fleet development prospects
According to the Civil Aviation Administration of Vietnam, Vietnam’s aviation industry will possess a fleet of
regional and global levels with over 250-270 aircraft. With this fleet of aircraft, Vietnam’s aviation industry will
have an actual significant influence on the market and on the international aviation map, and enhancing the
position of Vietnam's aviation industry. Vietnam's aviation industry will play a role in the associations,

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conventions, issues in investment, finance, aviation industry, and market division. In fact, all developed
countries possess large and powerful fleets2.
3.3 Key factors putting pressure on Vietnam's aviation industry
• Volatility of aircraft fuel prices (Jet Kerosene)
With fuel costs accounting for a large proportion of total expenditure (about 40% of VietJet's total expenditure
compared to 27% of Vietnam Airlines during the period of 2015 - 2018), the volatility of fuel prices has a great
impact on airlines’ business operations. Jet fuels are produced from crude oil by distillation. Therefore, its
price also fluctuates in accordance with the world crude oil price. In the past 5 years, jet fuel prices have tended
to decrease but have risen again in the last months of 2018. Unstable and unpredictable fuel prices make it
difficult for companies to prepare accurate profit plans.
To overcome and reduce this risk, the airline companies have worked out several options to lower the fuel
consumption and to limit the volatility of the fuel price: For example, since beginning of 2017, Vietjet received
new generation A320/321 NEO aircraft from Airbus, which helps save up to 15% of fuel consumption. The
company plans to enter derivative contracts for fuel at appropriate time, helping the Company to control costs
by purchasing fuel at a predetermined price and fuel will be delivered at a predetermined date in the future to
protect and minimize the risks from the increase of fuel prices.
• Airport technical infrastructure, air traffic control, access to landing/takeoff hours at airports
The airline companies depends on third parties for services provided at airports. Airplane parking lots, terminal
utilities and costs are extremely important to airlines’ operations. Ground operations and maintenance
facilities including aircraft doors, maintenance workshops, and support equipment must also be prepared in
line with airline expansion plans. Airlines have to rely on these required facilities and equipment at airports for
their operations. However, airlines cannot guarantee that airports will not be closed or services will not be
stopped for reasons beyond their control, which can result in the suspension of flights to and from such airports
that can adversely affect their operations.

III. DOMESTIC AVIATION INDUSTRY

1. DOMESTIC AIRLINES
Vietnam's aviation market currently includes Vietnam Airlines, VietJet, Jetstar Pacific Airlines, VASCO and
Bamboo Airways (Bamboo Airways is a new airline recently entering the market in January 2019). In which,
Vietnam Airlines owns 68.85% of Jetstar Pacific (recently changed to Pacific Airlines) and VASCO is a branch of
Vietnam Airlines.

2
Singapore (according to the "Population Trends 2015" report of Singaporean National Population and Talent Division (NPTD), the
Lion Island’s total population was about 5.54 million people), for example, with 2 airports. Singapore developed more than 10
participating airlines and had a fleet of 198 aircraft, not to mention future pending orders; Thailand (with a population
of over 67 million people) had 26 airports and 281 aircraft; Malaysia (with a population of over 30 million) had 26
airports and 282 aircraft.

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 Market shares of Vietnamese airlines from 2011 - 6M2016

80.0%
70.0%
60.0%

50.0%
40.0%
30.0%

20.0%
10.0% 2011 2012 2013 2014 2015 6 months
2016

First 6
Airlines 2011 2012 2013 2014 2015 months of
2016

Vietnam Airlines 74.6% 69.3% 63.4% 55.8% 46.2% 42.5%

VietJet Air - 8.0% 20.2% 29.6% 37.1% 41.5%
Jetstar Pacific 17.4% 14.8% 13.9% 13.1% 15.3% 14.2%
VASCO 2.1% 1.9% 1.8% 1.5% 1.4% 1.8%
Air Mekong 5.9% 6.0% 0.7% - - -
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Source: CAAV

In terms of market shares of Vietnamese airlines as at December 2019, VietJet takes up 42.2%, Vietnam Airlines
33.3%, Jestar Pacific 10.6%, and VASCO 1.9% of the market share.
Meanwhile, in contrast to the drop in transport supply market shares of the three airlines under Vietnam
Airlines Group (including Vietnam Airlines, Jetstar Pacific, VASCO), the "rookie" Bamboo Airways, which was
officially launched in January 2019, has been making significant progress with more than 12.3% of market
share.

2. COMPARISONS OF TWO LARGEST AIRLINES

We can see that two major airlines, Vietnam Airlines and VietJet, are currently competing in Vietnamese
aviation market. However, it is necessary to note two very important points about this Case Study: (i) VietJet is
a low-cost carrier, different from VNA; (ii) VNA is a state-owned corporation, while VietJet is a private joint-
stock company. Below we compare the two largest airlines in Vietnam based on some standards.
• Total assets

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As of December 31st, 2018, VietJet's long-term assets accounted for about 50% of its total assets, lower than
the rate of 76% of Vietnam Airlines. Short-term assets of airlines mainly include items such as: Cash and cash
equivalents; accounts receivable from customers (mainly from travel agents, freight agents, logistics units...);
inventory accounts for a very small proportion, on average less than 10% of total assets. Long-term assets of
traditional airlines such as Vietnam Airlines are mainly fixed assets, accounting for over 70% of total
assets. VietJet's long-term assets account for a smaller proportion of total assets compared to Vietnam Airlines
because VietJet adopts the aircraft sale and leaseback model. As of December 31st, 2018, the number of
Vietnam Airlines' aircraft was approximately 1.5 times that of VietJet.
Vietnam Airlines and VietJet’s assets

• Capital
Major airlines such as Vietnam Airlines or VietJet mainly finance their business with loans. Vietnam Airlines
and VietJet have both made large investments in aircraft fleets. However, during the period of 2015 - 2018,
both enterprises have experienced gradually decreasing Debt-to-Equity ratios, reflecting their policies of
reducing their proportions of debts to optimize their financial costs.
Vietnam Airlines and VietJet’s capital

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• Profitability
During the period of 2015 - 2018, the ratios of “Return on Equity” (ROE) of Vietnam Airlines and VietJet both
had a huge difference with the ratios of “Return on Total Assets” (ROA). This huge difference comes from the
fact that both Vietnam Airlines and VietJet are using high leverage. ROE and ROA ratios of both VietJet and
Vietnam Airlines were higher than that of other regional airlines in the same segment, however, when
compared directly, the two ratios between VietJet and Vietnam Airlines were different. Average ROE in the
period of 2015 - 2018 of Vietnam Airlines and VietJet was 11.44% and 64.11%, respectively; Their average ROA
in this period was 2.09% and 15.44% respectively. This difference was due to business characteristics between
the two airlines: Vietnam Airlines is a traditional airline and VietJet is a low-cost carrier.
• Business activities
In terms of revenue, Vietnam Airlines’ revenue was much larger than that of VietJet. Vietnam Airlines’ net
revenue for the period of 01/01/2018 - 31/12/2018 was VND 96,810 billion, which was nearly 2 times higher
than that of VietJet. The reason for Vietnam Airlines’ huge revenue was mainly thanks to its very wide flight
network with dense frequency and conveniently scheduled flight connections, and the large number of aircraft
(as of December 31st, 2018, Vietnam Airlines owned 93 aircraft). Vietnam Airlines also owns two airlines, VASCO
and JPA, thereby leading the Vietnam's aviation services. Revenue growth of Vietnam Airlines and VietJet was
both positive growth during the period of 2015 - 2018 thanks to a favorable industry context.
Vietnam Airlines and VietJet’s net revenues

During the period of 2015 - 2018, air transport companies such as Vietnam Airlines and VietJet had relatively
stable gross profits, with gross profit margins of over 10%. The factors affecting gross profit were mostly fuel
costs.
Vietnam Airlines and VietJet’s gross profit margins

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IV. VIETJET'S POSITION IN THE INDUSTRY
With an efficient LCC (Low-Cost Carrier) business strategy, VietJet has successfully grown to become the largest
low-cost carrier and the second largest airline in Vietnam. In terms of market share, it took up about 44% in
2019. Being an affordable airline, VietJet became one of the main drivers of growth for Vietnam’s aviation
market, surpassing other means of transport. The Company's growth in market share thanks to an affordable
fare strategy boosted demand for air transport and created a new customer segment that includes first-time
air passengers and passengers from other means of transport. A large proportion of the Company's customers
from July 2015 until December 2016 were first-time passengers.
VietJet believed that it played a key role in making air transport an option for passengers who were previously
unable to pay for air fares. According to SAP, the percentage of customers traveling by air in Vietnam’s total
population was 0.5% in 2012 and 0.8% in the first half of 2016. This reflects the trend that air travel is
increasingly replacing road, waterway and railway. CAAV data shows that VietJet contributed 65% of the
growth rate of domestic air passengers during the period of 2012-2015.
VietJet 2017-2019 revenue (unit: billion VND)

Air transport service revenue increased by 22% over the previous year, of which ticket sales reached VND
25,905 billion, growing 5.0% over the same period. Revenues from international routes increased by 32.1%,
reaching VND 14,692 billion. The proportion of international revenue in total transport revenue increased from
45.2% in 2018 to 56.7% in 2019. Ancillary revenue reached VND 11,340 billion, an increase of 36.0% over the
previous year. Ancillary revenue growth was mainly thanks to baggage charges and surcharges, on-board sales,
and in-flight advertising revenue. In 2019, VietJet also promoted ancillary services for sale of travel insurance,
as well as increasingly diversify on-board sale items.
Expenses of the Flight Operation Division including expenses for aircraft lease, jet fuel, overflight fees, and
other operating expenses, increased by 24% and accounted for 78% of total expenses, equivalent to VND
30,087 billion. Technical expenses including aircraft repair and maintenance increased by 74% due to an
increase in provisioning and accounted for 10% of total expenses, equivalent to VND 3,753 billion. Ground
service expenses mainly including airport-related service expenses and take-off/landing expenses increased by
6% and accounted for 7% of total expenses, equivalent to VND 2,851 billion. Selling and marketing expenses
accounted for 3% of total expenses and increased by 34% mainly due to the expansion of the route
network. General and administrative expenses were VND 422 billion, increased by 51% due to human resource
development to be prepared for development.

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 VietJet’s operating expenses during 2017-2019 (unit: billion VND)

Number of aircraft and flight network (2019)

As of December 31st, 2019, the average age of VietJet fleet was 2.82 years old and was among the youngest
fleet of the low-cost carriers in the Asia-Pacific region as reported by SAP. Younger aircraft tend to be more
fuel efficient and have lower maintenance costs that will contribute to the Company's profitability.

VietJet’s labor cost per available seat kilometers (ASK) was VND 92 (0.42 cents) in 2015, among the lowest low-
cost carriers globally according to a research by SAP. The Company believes this is due to its streamlined
organizational structure and a highly productive, and well organized and managed workforce. “VietJet Air”
brand has been formed and has gained Vietnamese consumers' trust, reflected in VietJet’s number of
passengers. Since its operation in 2011, the total number of passengers reached 100 million at the end of 2019.
VietJet also has strict safety standards that ensure a reputation for service quality and safety. In 2015, the
Company received the IOSA certificate issued by IATA. The company is the first low-cost carrier in Vietnam to
receive this certificate. Only a handful of low-cost carriers in the world have been able to obtain an IOSA
certificate, such as Ryan Air, EasyJet, Southwest; while AirAsia or Cebu Pacific have not been IOSA certified.

Page 16 © Dr Trung Dinh

 Number of flights conducted and number of passengers carried (2019)

• Distribution channels
Although the Company has a strategy to increase Internet bookings, but the sales via agents is a very important
distribution channel. The Company's revenue will be negatively affected if agents choose to prioritize the sale
of other airlines’ fares. Each agent maintains and develops their own customer bases and may impose a
transaction fee on their own customers. VietJet's sales policy applicable to agents is different from traditional
airlines. VietJet does not pay commissions to agents; instead, the agent uses VietJet website and pre-pays the
fares for VietJet. VietJet's booking offices and customer service center can buy air tickets through VietJet's 24/7
customer service center. VietJet has been increasing its online sales channels.
VietJet has also cooperated with retailers such as banks, Vietnam post, and convenience stores to operate as
ticketing offices as well as ticket payment offices for ticket sale via other distribution channels. Currently,
VietJet has more than 3,000 cash collection offices in Vietnam.

• The increase in fleet maintenance costs and the efficiency of third-party maintenance
VietJet has signed long-term maintenance and repair contracts with service providers to ensure fleet safety
standards and to stabilize its maintenance and repair costs. In addition, the Company has also regularly reduced
the average age of its fleet by adding new aircraft and returning older leased aircrafts, thereby significantly
reducing this risk. With newly ordered aircraft, VietJet enters long-term contracts with the manufacturer for
maintenance and repair at a low and stable costs.

• Ability to attract, train and maintain qualified staff at affordable costs

VietJet’s business model requires a team of highly skilled pilots, engineers, crew, flight attendants and other
employees.

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 HR structure and classification by position (2019)

VietJet’s development plan requires the hiring, training, and retaining a significant number of new
employees. As of December 31st, 2019, VietJet’s total number of employees was 5,144. The proportion of
foreign workers accounted for nearly 22% of the total number of VietJet’s employees. They included pilots,
flight attendants and experts with experience in multiple fields who all work, cooperate, and learn in the VietJet
environment, creating a diversified environment in terms of nationalities and culture, and they have been well
developed to share and develop knowledge, skills and experience, contributing to the Company’s rapid and
sustainable development.
The aviation industry has experienced a shortage of skilled staff, especially pilots and engineers. VietJet has
competed with traditional airlines in attracting highly skilled employees, especially pilots. Currently, in terms
of human resource development, VietJet Air aims “To become a multinational airline group with an expanded
regional and global flight network”. Therefore, VietJet's employees have been recruited from more than 30
different countries around the world to fully satisfy the aeronautical capacity and expertise (especially the crew
of pilots, aircraft maintenance and repair engineers, flight dispatchers, and flight attendants).

V. VIETJET'S BUSINESS DEVELOPMENT STRATEGY AND OBJECTIVES

VietJet’s development orientation focuses mainly on the following factors:
❖ Focus on developing the domestic aviation market: The company has significantly contributed to the
growth of the domestic aviation market and changed customers’ perception of air travel during the past
years through low-cost air transport marketing and delivery efforts.
❖ Open more international routes in Asia: to provide air transport services for Vietnamese expatriates living
abroad and foreign visitors to Vietnam. Vietjet will strive to operate with high frequency with short and
medium haul flights to cities within a radius of 5-6 flight hours and explore the routes considered by
Company to be in short of supply. The Company will continue to focus on top tourist destinations in the
Asia - Pacific region and regions with a large number of overseas Vietnamese such as Singapore, Thailand,
Myanmar, South Korea, Taiwan, Japan, India, and China. In addition, the Company operates chartered
flights to a number of potential markets before establishing new routes
❖ Increase the number of aircraft: to support the Company's continued growth of business and the increase
in the number of air passengers carried.
❖ Increase flight time of each aircraft by decreasing flight turnaround time.

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❖ Entering interline arrangements with other airlines to expand the Company's flight range options: The
Company plans to enter interline arrangements with other airlines to allow the Company's customers to
book tickets to final destinations not within the Company's flight network.
❖ Auxiliary revenue growth: maximize existing revenue-generating products and introduce new revenue-
generating product lines.
❖ Ensuring aircraft spare parts and supplies: VietJet’s goals of ensuring the supply of spare parts and supplies
include: (i) ensuring the supply of spare parts and materials for maintenance and repair in an effective
manner, minimizing flight delays due to the lack of spare parts and supplies; (ii) minimizing investment
costs for spare parts and supplies warehouse, keeping the lowest inventory levels to avoid locking up of
capital.

Page 19 © Dr Trung Dinh

REFERENCES
❖ VIETJET PROSPECTUS
❖ VIETNAM AIRLINE PROSPECTUS

❖ VIETJET ANNUAL REPORT 2019

❖ https://tuoitre.vn/vi-sao-jetstar-pacific-tro-ve-ten-khai-sinh-va-vietnam-airlines-nam-giu-98-co-phan-
20200615132733954.htm
❖ https://tuoitre.vn/xoa-so-thuong-hieu-jetstar-pacific-chuyen-sang-ten-pacific-airlines-
20200615120813809.htm
❖ http://tapchitaichinh.vn/tai-chinh-kinh-doanh/viet-nam-duoc-du-bao-la-thi-truong-hang-khong-tang-
truong-nhanh-nhat-the-gioi-317860.html

❖ https://mvvacademy.edu.vn/tin-tuc/10-xu-huong-cong-nghe-trong-diem-cua-nganh-hang-khong-trong-
nam-2019/

❖ https://www.mt.gov.vn/khcn/tin-tuc/32743/dien-dan-cong-nghe-thong-tin-nganh-hang-khong-viet-
nam.aspx

Page 20 © Dr Trung Dinh

APPENDIX

Source: VietJet Annual Report 2019

Page 21 © Dr Trung Dinh

INTRODUCTION OF MEMBERS OF BOARD OF DIRECTORS, BOARD
OF MANAGEMENT, AND SUPERVISORY BOARD
Members of Board of Directors

1. Ms. NGUYEN THANH HA

Chairman of the Board of Directors
2. Ms. NGUYEN THI PHUONG THAO
Vice Chairman of BOD
3. Mr. NGUYEN THANH HUNG
Vice Chairman of BOD
4. Mr. LUU DUC KHANH
Member of BOD
5. Mr. DINH VIET PHUONG
Member of BOD
6. Mr. DONAL JOSEPH BOYLAN
Member of BOD
7. Mr. CHU VIET CUONG
Member of BOD

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Source: VietJet Annual Report 2019

SHAREHOLDERS STRUCTURE

Source: VietJet Annual Report 2019

Page 23 © Dr Trung Dinh

Operational targets:

Projected % vs. Projected % vs. 2018

Content Unit 2017 2018 2019 2019 2019
1 Number of Aircraft Aircraft 52 64 78 76 102.6% 121.9%
2 Number of routes Routes 90 105 139 134 103.7% 132.4%
3 Number of flights flights 98,805 118,923 138,952 145,870 95.2% 116.8%
4 Passenger transport Million 17.1 23.1 24.9 27.7 89.9% 108.0%
5 Load Factor % 88.05% 88.06% 86.78% 88.06%

Business results: Projected % vs. Projected % 2019 vs.

Content Unit 2017 2018 2019 2019 2019 2018

Total Revenue VND billion 42,303 53,577 50,603 58,393 86.7% -5,6%
Revenue from air transport VND billion 22,549 33,779 38,589 42,250 91,3% 14,2%
Revenue from aircraft VND billion 19,754 19,798 12,014 16,143 74,4 -39,3
trading
Profit before tax VND billion 2,045 3,045 3,869 3,800 101.8% 27.0%
Source: VietJet Annual Report 2019

Page 24 © Dr Trung Dinh

Source: VietJet Annual Report 2019

Page 25 © Dr Trung Dinh

 BOARD OF DIRECTORS
5,144
“As of December 31st 2019, VietJet
had 5,144 employees, increasing by
SUPERVISORY BOARD 33.5% compared to 2018, majority
of whom are high-quality aviation
human resources”

BOARD OF MANAGEMENT

SAFETY, SECURITY AND

AUDITING &
QUALITY ASSUARANCE
INTERNAL
(SSQA)
CONTROL

FILIGHT GROUND FINANCE-

TECHNICAL COMMERCIAL PEOPLE VIETJET AVIATION
OPERATION OPERATION ACCOUNTING BACK OFFICE
DIVISION DIVISION DEPARTMENT ACADEMY
DIVISION DIVISION DIVISION

• MANAGE • •
• ENGINEERING MANAGE DOMESTIC AND
FLIGHT CREW –
• MAINTENANCE GROUND INTERNATIONA
CABIN CREW
• SUPPLY & SERVICES L SALES AND
(FCD, CCD) • STANDARD & DISTRIBUTION
STORE
• FLIGHT TRAINING & SS • MARKETING
OPERATION • CUSTOMER AND
ENGINEERING SERVICES ADVERTISING
(FOE) • PLANNING AND
• OPERATION GROUND SERVICE SYSTEM FINANCE PROJECT & CONTRACTS &
CEO OFFICE LEGAL PROCUREMENT FLEET PLANNING ICT
MANAGEMENT OPERATION CENTER BUSINESS BUSSNESS INSURANCE
CENTER (OMC) DEVELOPMENT

SUBSIDIARIES AFFILIATES

VIETJET AIR VIETJET AIR CAMRANH

VIETJET AIR VIETJET AIR IVB VIETJET AIR IVB SKYMATE
SINGAPORE IRELAND No.I THAI VIETJET INTERNATIONA
CARGO No.I LIMITED No.II LIMITED LIMITED
PTE., LTD LIMITED 9% L TEMINAL
90% 100% 100% 100%
100% 100% 100%

Provide cargo Aircraft and Aircraft trading Aircraft trading Aircraft trading Aircraft trading Provide cargo, Provide services
transportation spare part and leasing and leasing passenger that directly
service and trading and transportation support air
other related leasing service and transportation
services other related
services

Source: VietJet Annual Report 2019

Page 26 © Dr Trung Dinh