Assoc.Prof., Dr., Tran Viet Dung PhD Candidate, Pham Hoai Huan IMPACTS OF THE ACCESS TO AIRPORT SERVICES AND OTHER AIR SUPPORTING SERVICES IN AVIATION’S COMPETITION: A CASE STUDY OF VIETNAM Assoc.Prof., Dr., Tran Viet Dung PhD Candidate, Pham Hoai Huan

Content Overview of Vietnam’s Aviation Market Law and Policy for Development of Air-transportation Service Sector Vietnam’s Domestic Aviation Market Structure Impact factors Some observations and recommendations

Overview of Vietnam’s Aviation Marktet For the last decade, in term of passenger movement at airports, Vietnam aviation industry has recorded a magnificent average growth CAGR of 17.4%. In the last 5 years, Vietnam aviation industry recorded a CAGR of 16.1% surpassing that of Asia-Pacific area (7.9%) For 2016, number of passenger in this market is around 81 million (+29% YoY), breaking its own previous high-record of 63.1mn in 2015.

Overview of Vietnam’s Aviation Marktet (cont’d) In comparison with other public transportation vehicles (OPV), including bus, ferry and railway, domestic aviation has been performing with a more vigorous and accelerating pace, referring its favorable roles in means of transportation. For the last 5 years, air-travel enjoyed a robust CAGR of 16.3%, beating the single-digit rate of 6.6% of OPV. In 2016, total revenue is VND 13.4 trn. (around USD 589 mil)

Law and Policy for Development Air Transportation Services Policy of development air-transportation services sector Law regulating air-transportation services Competition in air-transportation Requirements for business Conditions for licensing flight operations Flight time frame regulations

Vietnam’s Domestic Aviation Market Structure Competition structure of air-transportation service: Vietnam Airline (VNA) Jetstar Pacific (JPA) Vietjet Air (VJA) Others(*) JPA has become is a part of Vietnam Airlines - VNA received 70% shares of JPA from the State Capital Investment Corporation (SCIC) in 2012. (*) Air Mekong and Indochina Airlines terminated operation in 2015 and 2011 respectively

Vietnam’s Domestic Aviation Market Structure Competition structure of air-transportation service: Vietnam Airline (VNA) Jetstar Pacific (JPA) Vietject Air (VJA) Mekong Air (terminated operation in 2013) JPA has become is a part of Vietnam Airlines - VNA received 70% shares of JPA from the State Capital Investment Corporation (SCIC) in 2012.

Vietnam’s Domestic Aviation Market Structure (con’d) VNA - the National Champion Decision 21/QD-TTg of the Government, dated 8 Jan 2009 on planning of air transportation until 2030 Vietnam Airlines and Jetstar Pacific together have about 90% share of domestic capacity. That has been decrease as Vietjet (budget airlines), which launched services in Dec-2011, grows its operations.

Impact factors Factor 1: Air-supporting services Aircraft engineering services Airport services (security, baggage conveyor belt rental, aerobridge rental services…) Fuel supply services Take-off and landing and ground-handling services Other ground resources. These services are provided to all airlines by authorized State own enterprises (SOE) only.

Vinapco Case Abuse of dominance: access to competitive resources Vietnam Petrol Corporation (“Vinapco”) is the only company licensed by the government to supply fuel for commercial flights in Vietnam. Vinapco signed fuel supply agreement with VNA and Pacific Airlines (PA). On 12 March 2008, Vinapco proposed PA to re-define the fuel purchase price; PA disagreed with the increase as Vinapco allowed Vietnam Airlines to enjoy lower price. April 2008, Vinapco had unilateral terminated its fuel supply to PA (for few hours).

Vinapco Case (cont’d) Fuel costs account for 60% of the airline's production costs. The price control on fuel can have special impacts on competition. Before the Vinapco Case, the monopoly by SOE in air-supporting services is popular in Vietnam. VNA’s access to resources and support services is better than other competitors in the market.

Vietnam’s experience Vietnam Competition Council found VINAPCO had abused the monopoly position by “imposing disadvantageous conditions for customers” and “unilateral termination of contract without appropriate reason” (Art. 14 Competition Law) The government has started to grant license to other fuel suppliers, which helps to create the competition in air-fuel supply industry in Vietnam.

Vietnam’s experience (cont’d) Vinapco is typical case related to the problem of access to competitive resources and support services for air transportation. Vietnam government introduced: common price frame for the air-supporting services encouraged competition in air-supporting services Participating airlines now have access to resources on competitive basis

Vietnam’s experience (cont’d) Decision of 2345/QD-TCTCHKVN of Ministry of Transport (2016) promulgating price list and charges frames for certain of airport services in Vietnam. Airport services which the State regulate the price frame: Flight control services Aircraft parking services Check-in counter facilities rental Baggage conveyor belt rental Aerobridge rental services Package ground handling services Airport services provided which the State regulate the price: Take-off and landing services Aviation security assurance services Passenger service at airports

Factor 2: Tacit support by regulator Flight route planning Time frame for take-off and landing

Competition between traditional and low cost airlines In the last 5 years, air-travel market in Vietnam has witnessed a remarkable ‘invasion’ low-cost airlines. In 2011, the market was majorly belonged to VNA (75%) while the rest lied with Jetstar Pacific (17%) and others (8%). However, the big picture rotated in the following years when VJA kept increasing its volume from ~2.5mn in 2012 to ~9.3mn passengers in 2015 (3-year CAGR of 55.7%). VJA continuously decreases price the market share of VNA reduced significantly In 2016 Vietjet Air’s market share (total passenger volume) was 42%, while VNA (43%) and Jetstar (14%) only. Vietnam Civil Aviation Authority has proposed to establish minimum air-ticket price

Some observations and Recommendations Law and policy of development of air transportation services Developing competitive air-supporting services Developing of national champions (but not at all cost) Involvement of Civil Aviation Authority

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