Vietnam Airlines operates daily flights from Melbourne and Sydney to Ho Chi Minh as well as three weekly flights from Sydney to Hanoi. Sydney-Hanoi was launched in late Mar-2017. As Blue Swan has previously analysed, Vietnam Airlines' launch of Sydney-Hanoi and Jetstar's launch six weeks later of daily services to Ho Chi Minh (including four weekly frequencies from Sydney and three weekly frequencies from Melbourne) resulted in a more than 80% increase in seat capacity in the Australia-Vietnam market.
Vietnam Airlines CEO Duong Tri Thanh told CAPA on the sidelines of the Jun-2017 IATA AGM that Jetstar's new service to Ho Chi Minh "adds a lot of capacity and now we have to readjust".
Vietnam Airlines CEO Duong Tri Thanh: Jetstar's new service to Ho Chi Minh "adds a lot of capacity and now we have to readjust".
Vietnam Airlines has no plans - at least for the time being - to reduce capacity to Australia. The airline is instead aiming to generate more sixth freedom transit traffic beyond Vietnam to offset a decline in local Vietnam-Australia traffic driven by Jetstar's launch.
"We have to figure out what is the good way to manage the growth in capacity and the growth in the market and how to channel the connecting traffic through our hubs," Mr Thanh said. "But it's a tough job."
Traditionally a very small share of Vietnam Airlines traffic from Australia has transferred beyond Ho Chi Minh. The new Sydney-Hanoi route has generated a larger portion of transit traffic, including to Europe. The Hanoi Airport is more modern and offers a better transit experience than Ho Chi Minh.
Vietnam Airlines is hoping to further grow transit traffic beyond Hanoi but is also aiming to provide better connections to Australia passengers beyond Ho Chi Minh. Generating more transit traffic on the Melbourne and Sydney to Ho Chi Minh routes is imperative in order for Vietnam Airlines to maintain its daily service on the Melbourne and Sydney to Ho Chi Minh routes in the aftermath of Jetstar's entrance.
Vietnam Airlines serves all three of its Western European destinations from both Hanoi and Ho Chi Minh. Connections are also available at both hubs to North Asia and regional destinations in Indochina including Cambodia and Laos.
Attracting sixth freedom transit traffic is challenging as markets such as Australia to London, Paris and Frankfurt are extremely competitive. Vietnam Airlines' Australia yields will therefore decline as it focuses more on transit traffic. However, Vietnam Airlines has little choice but to aggressively pursue transit traffic from Melbourne and Sydney in order to achieve reasonable load factors on its three Australia routes.
Australia to Vietnam one-way weekly seat capacity by airline: Sep-2011 to Dec-2017
Source: CAPA - Centre for Aviation & OAG