Budget airline soars in Vietnam, but no more bikini-clad models
HO CHI MINH CITY, Vietnam -Budget carrier VietJet used to be best known for its rather un-Marxist promotional gimmick of flying bikini-clad models on its airplanes.
“The first time we did it we were fined $1,000 by the civil aviation authority,” said chief executive and founder Nguyen Thi Phuong Thao. It was a cheap and fun way of drumming up publicity for new beach destinations, she explained. The company has also sent flash mobs to an airport in Taiwan to perform dance routines to Pharrell Williams’ song “Happy” and released music videos featuring ground staff.
In March, Thao drew attention for a more serious reason: Her airline passed state-owned behemoth Vietnam Airlines in market capitalization, reaching a valuation of over $1.8 billion. That made her the country’s first woman billionaire and turned VietJet into a bright illustration of communist-run Vietnam’s changing economic DNA.
Vietnam’s leaders have moved in recent years to encourage foreign investors and have made it easier for private firms to compete against the state. People familiar with the situation say the idea is to make Vietnam less dependent on China, its giant neighbor to the north.
“Vietnam needs to make itself important to the rest of the world if it wants to avoid being absorbed into China’s orbit,” said one person close to the situation. “And this is how the government is going to do it: through trade and business.”
Investment officials have offered a range of tax incentives to lure foreign manufacturers such as Samsung Electronics Co., which makes products in Vietnam and now accounts for a fifth of the country’s exports. Vietnam is expanding its network of trading partners – including with the European Union – even as the Trump administration withdrew from the Trans-Pacific Partnership.
“Everything is speeding up. It’s faster getting permits and all the other papers we need. It’s becoming like America,” said Nguyen Trong Nghia, who runs an engineering firm with his two brothers in Ho Chi Minh City.
Vietnam’s GDP grew 6.2% in 2016, one of the fastest in the world.
To be sure, progress is slower than some would like. Notably, the privatizations of state-run companies have been fewer and smaller than some investors had hoped. But amid the changing times, VietJet has flourished.
Thao, 46 years old and soft-spoken, excelled at school, and the government sent her to study finance and economics in Moscow. She stayed on after the collapse of the Soviet Union and made her first million trading commodities between Eastern Europe and Asia.
She returned to Vietnam in the 2000s and began investing in property developments in Ho Chi Minh City on what was then the sparsely-populated south side of the Saigon River. As the neighborhoods there began to boom, Thao generated enough money to leap into the airline business. Her initial plan was to launch a luxury rival to Vietnam Airlines. “We were going to be like a JW Marriott of the skies,” she said.
After the global financial crisis struck Vietnam, however, she began studying low-cost carriers such as Southwest Airlines (based in the US), Ryanair (Ireland) and AirAsia (Malaysia) before launching VietJet in 2011 as a budget carrier.
“It was difficult letting go of everything we had done. It was like saying goodbye to a child. But we had to do it if we wanted to make a profit,” Ms. Thao said. “It was a real turning point for us.”
At first, VietJet met resistance, say two aviation-industry executives. At times it had to wait until Vietnam Airlines planes were allocated parking bays before getting clearance to unload their own passengers. “They also had to wait for air-traffic controllers and maintenance services,” one person close to matter said. “Vietnam Airlines was always first.”
Civil-aviation officials say they treat state and private airlines equally and are working together with VietJet to expand the air travel sector and, in turn, the country’s growing tourism business. Thao agrees. “They are very supportive,” she said.
Vietnam’s Communist Party General Secretary Nguyen Phu Trong underscored the change this month at a top-level party meeting, calling for the “elimination of all prejudices and obstacles” hindering private businesses.
Aviation analysts at the Centre for Aviation, or CAPA, now predict VietJet will overtake Vietnam Airlines as the country’s largest domestic carrier. Its international operations are growing too, fueled in part by a 30% rise in tourism arrivals in the first quarter of the year.
VietJet carried 3.7 million passengers in that period, up 29% from the same quarter last year.
That helped drive up first-quarter revenue by more than 44% to reach 5 trillion dong, or around $219 million. VietJet is now planning to ask the government to raise its cap on foreign shareholders to 49% of equity from 30% as part of a longer-term plan to list its shares overseas and generate more money to meet the growing demand.
The company also signed an $11 billion order with Boeing Co. last May to buy 100 737 Max 200 jets, followed by an order for 20 Airbus A321s, highlighting the importance of Asia’s new generation of budget carriers to the aircraft makers.
Vietnam Airlines isn’t standing pat, having recently took delivery on 11 new 787 Dreamliners from Boeing in an effort to broaden its appeal among business travelers.
It also lifted a page in March from the VietJet business plan, releasing a video of flight crews and ground staff lip-syncing and dancing to a local pop song, “Bang Bang, Boom Boom.”