Low income people and airlines market share: How budget airlines help to bring flights to everyone

In order to gain market share advantage, airlines must compete on price. At the same time, they also face the problem of harsh profit margin. In this aspect, budget airlines is clearly performing better than full service airlines to ensure affordable price for every customers, even the low-income group.

Mr. Nguyen Ngoc Vinh is a native of Hanoi and has been teaching in Dak Lak since 2010. Every year, Vinh often makes his way back to his hometown in May instead of Tet, Save on travel expenses.

Prior to 2013, he usually chose cars as the main means of transportation. Travel time is about 2.5 days, one way cost about 900,000. However, three years he returned home by plane, with a 3-hour travel time, one-way cost is equivalent to road.

When poor people can also get the plane

This story is no longer a rarity, given the growth rate of the aviation industry a decade ago. After reaching 62.2 million arrivals in 2015, the aviation industry expects to maintain a 20% growth rate for at least another year. All flight groups are expected to grow, with local roads being the main target of low-cost carriers.

An economist said, "Now the poor are able to get on the plane." According to this, when the companies compete each other, cheap tickets launched so many low-income people, students, students are also eligible to fly.

Traveling by plane helps people save time, with no significant cost difference with other types of transportation, so customers switch to using. this service is easy to understand ", Dr Dinh the Hien share with Zing.vn .

However, it must also be recognized that, before 2011, the airline has not achieved the superiority of today. For most people at that time, the plane was a luxury, as the cost of every ticket was very expensive, up to millions, even tens of millions, for domestic flights. However, things have been different since cheap air bloomed in Vietnam.

In terms of market share, Vietnam Airlines is still the Vietnamese airline that holds the biggest advantage of domestic flights, accounting for about 47%. This figure is overwhelming for other companies, but it is down from previous years. By 2014, the national airline once holds a 56% market share, 2013 is 61% and 68% in 2012.

While the market share of Vietnam Airlines decreased gradually, the remaining airlines have stable business results. Vietjet Air is occupying 36.3% of the domestic civil aviation market share (up 9% compared to last year, approximately equal to the reduction of Vietnam Airlines). But at one point it achieved market share with Vietnam Airlines (40-40), while Jetstar achieved 14.9%, up nearly 2% over last year. 

The bipolar still hard to form

Having to share a small portion of market share for low cost carriers, Vietnam Airlines must of course set a modest target for the number of passengers in the coming years.

Over the next three years, Vietnam Airlines aims to grow at 16.1% per annum. In 2016, the domestic market will maintain its market share at 40.8% (excluding the market shares of two other contributing companies, JPA and VASCO). Meanwhile, Vietjet Air set a target of 50% growth in 2016, which means it could reach over 42% market share in 2016.

In return for modest market share, Vietnam Airlines is the hardest to expand the fleet in the market. By 2015, the company invests up to $ 1 billion to renovate its fleet, most of it spent on the plan to bring in nine supercars, including four Airbus A350s and five Boeing 787-9s. Vietjet Air alone lifted its fleet of 29 aircraft, including the Sharklet's A321 fuel-efficient narrow body aircraft. The fleet of Jetstar Pacific currently operates eight aircraft, unchanged from 2014.

As predicted by the Asia-Pacific Aviation Center (CAPA), the number of seats needed to fill Vietnam Airlines and Vietjet Air in January 2016 could be as high as half a million seats per week, twice as much. with January 2015. Representing an airline, airlines will be forced to reduce ticket prices, accepting a profit-sharing with market share if they want to maintain growth as The current.

In fact, the fares of the national airline Vietnam is currently not much difference compared with other airlines. With the local road group, the fare was almost scratched. The difference lies only in the main routes, when Vietnam Airlines with the advantage of exploiting the segment of business customers, VIP guests, or in the peak season, Tet holidays.

This leads to the fact that while maintaining the title of the best profitable company in the industry, profit margins of Vietnam Airlines parent company (including VASCO) in 2015 are very modest. Its revenue in 2015 was 57,100 billion dong, profit was 260 billion dong, equivalent to 0.45% profit margin. This means that for every one million dong of revenue, the company earned only a profit of 4,500 dong. 

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