Australia-Vietnam traffic surges as competition heats up

28 November, 2017

Traffic in the Australia-Vietnam market has increased by 70% since Jetstar Airways launched services to Ho Chi Minh in May-2017. Jetstar achieved an average load factor of 83% in the first four months of operating nonstop flights in the Australia-Vietnam market while Vietnam Airlines' load factor has only dropped slightly despite a surge in capacity.

Jetstar Airways resumed service to Vietnam on 10-May-2017. The LCC has since operated three weekly nonstop flights on the Melbourne-Ho Chi Minh route and four weekly nonstop flights on the Sydney-Ho Chi Minh route using 335-seat 787-8s.

Jetstar carried slightly over 60,000 passengers between Australia and Vietnam in the first four months of the service (May-2017 through Aug-2017) and had an average load factor of 82.5%, based on BITRE data. A load factor of above 80% for a new long-haul service is quite an achievement although promotional introductory fares and Vietnam's peak summer season demand likely had a positive impact. Jetstar's monthly load factor on flights to and from Ho Chi Minh was 87% for the two peak months of July and August.

Jetstar Airways had a much lower average load factor of 71% in its initial attempt at serving Ho Chi Minh from 2006 to 2012. Jetstar operated nonstop flights from Sydney to Ho Chi Minh from 2006 to 2008 using A330-300s and from 2008 to 2012 operated from Darwin to Ho Chi Minh using smaller A320s. Jetstar never served Ho Chi Minh from Melbourne until the May-2017 launch.

Vietnam Airlines was the only nonstop competitor in the Australia-Vietnam market for over five years, from Mar-2012 to May-2017. During this period Vietnam Airlines grew at a relatively modest clip of 7% per annum, carrying 324,000 passengers in 2016 compared to 243,000 passengers in 2011.

Vietnam Airlines has accelerated growth in Australia this year due to the Mar-2017 launch of three weekly flights from Sydney to Hanoi, which supplement its longstanding daily services on the Sydney and Melbourne to Ho Chi Minh routes. Vietnam Airlines currently operates 274-seat 787-9s on all its Australia flights.

Traffic in the Australia-Vietnam market has increased by 70% since Jetstar Airways launched services to Ho Chi Minh in May-2017.

From May-2017 to Aug-2017 Vietnam Airlines passenger traffic to and from Australia was up 10% to 111,000 passengers, according to BITRE data. The airline's seat capacity was up 16% during this period, driven by the Sydney-Hanoi launch, resulting in a 3.6ppts slip in load factor from 76.4% to 72.8%.

The decline in Vietnam Airlines' Australia load factor is somewhat discouraging but relatively modest given the huge surge in capacity. Total seat capacity in the Australia-Vietnam market increased by 71% in the May to August period to 226,000 while passenger numbers increased by 70% to 171,3000.

Vietnamese visitor numbers to Australia increased in the May to August period by approximately 35% year-over-year to 31,600, according to Tourism Australia data. Australian visitor numbers to Vietnam increased by approximately 22% in the four months ending Aug-2017 to 116,000, according to General Statistics Office of Vietnam data.

While the visitor growth at both ends is solid, the capacity growth has been at a much faster clip. This indicates that more Australia-Vietnam traffic is flying nonstop, bypassing Southeast Asian hubs such as Bangkok, Kuala Lumpur and Singapore. It also indicates that Vietnam Airlines is carrying a higher portion of sixth freedom traffic on its Australia-Vietnam flights.

The Jetstar Group previously carried a large number of passengers from Australia to Vietnam via Bangkok and Singapore with the second leg operated by Jetstar Asia and Jetstsar Pacific. Jetstar has shifted most of this traffic to the new nonstop flights although Vietnam-based Jetstar Pacific has gained domestic connecting passengers who arrive in Ho Chi Minh from Melbourne and Sydney and are headed to other points in Vietnam.

Vietnam Airlines has been promoting international connections for the first time in the Australian market, including Australia-Europe connections. Sixth freedom traffic has enabled Vietnam Airlines to avoid a more significant drop in load factor on its Australia services but comes at the expense of yield. Jetstar entering the market as a new nonstop low-cost competitor also has impacted yields, particularly during the off-peak months.

See related reports: