Labor costs in Vietnam are lower than in the region.This is one of the biggest strengths of airlines in Vietnam, when airline staff salaries are much lower than the region. In addition, Vietjet's number of employees to aircraft is also lower than that of Southeast Asian LCC airlines, making staff costs to ASK almost the lowest in the region.
Good ancillary revenue
Vietjet Air is one of the low-cost airlines with the highest ancillary revenue in the Asia Pacific region, only after low-cost airlines serving long flights as Air Asia X (a subsidiary of Air Asia) and after LCC firms in high-income developing markets (Hongkong Express - Hong Kong-based) and Jetstar Airways (Australia's low-cost carrier, Quantas Airways group). Therefore, it can be seen that in developing countries, Vietjet is doing a good job of collecting auxiliary fees on flights . Revenues from ancillary services are an important factor in the success of most low-cost airlines (LCC). This is also the factor that helped VietJet quickly make profits. Currently, this source contributes more than 23% of VietJet's revenue. A
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few LCCs account for more than 30%, but 23% are admirable figures for a
fledgling firm, especially in Asia. Moreover, about 80% of the labor cost is taken from the surcharge. The remaining 20% comes from selling goods on airplanes and duty-free zones, advertising on airplanes. Vietjet believes that they can continue to increase the fee revenue through expanding the product or e-commerce platform, socializing with partners such as Facebook or Google…..
In international flights, ancillary revenues (luggage surcharges, food, seat
selection, system service surcharges ...) is often much higher than domestic flights.
The increase in the rate of international flights will help Vietjet gain higher revenues in the coming time.
Vietjet has built a strong brand in Vietnam
Vietjet is one of the strongest brands in Vietnam. A study of CAPA showed that 98% of Vietnamese people know the name Vietjet, 88% of its customers feel satisfied. All thanks to good products and smart makerting programs (like bikini campaigns). Currently, Vietjet is building a loyalty program, which will further enhance their position in the domestic market.In addition, Viejet has 1,300 ticket agents throughout the country. Since 2014, Vietjet has stopped paying
commissions to agents, paying only 0.3% of the total cost. That is one of the reasons that Vietjet, although selling air tickets is very cheap, still has a lot of profit.
The creativity, youthfulness and newness of Vietjet's staff and the strategic vision of the leadership team.
If you have the opportunity to experience on Vietjet's red-yellow painted flights, it is easy for passengers to catch the flight attendants wearing their own clothes that are extremely prominent including red shirts, and checkered shorts. dynamic and
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freshly smiling to sell by-products such as saving items, food and drinks ...
Obviously, Vietjet Air's business team is quite creative in making the most of revenue sources, regardless of proportion. They are not big, but it works to bring a professional service style and a more diligent and dedicated attitude to the staff.
WEAKNESSES
Sale and Leasebacks (SLB)
Aircrafts are very valuable assets and in order to quickly have market share, it is necessary to have a wide coverage and fast development of the fleet which means ifyou want to own aircraft you must have a lot of debts. To get a good profit from the end of 2014 to now,Vietjet has signed contracts to buy large-scale aircraft up to hundreds of units to get a very good discount of suppliers ( Airbus and Boeing), helping the price to buy aircraft at a low level and can earn good returns when reselling to lessors. The discount that Vietjet received from Airbus for delivery aircraft in 2017 averaged up to 60% on its listed price, helping the profit from SLB operations reach $ 8.8 million / unit. VietJet is also benefiting from low
maintenance costs because of its new fleets. However, in the future, the cost of maintaining and leasing aircraft may increaseas well as inflationary pressures on wages, VND devaluation and the company faces more fierce competition after expanding its operations in the international market, the move needed to have 300 orders can be used up.
Joint venture strategy
Vietjet has negotiated with potential joint venture partners to establish a low cost airline in Asia. However, most did not materialize and ThaiVietJet was the first joint venture established in Thailand in 2013 and encountered many obstacles.The most recent cooperation was on October 19, 2018, Vietjet signed a successful joint
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venture with Japan Airlines. Currently these two airlines have three joint venture routes operated by Vietjet starting from October 28, 2018 and will continue to expand the domestic and international route network between the two countries in the future. VietJet is continuing to consider joint venture opportunities in other countries. However, challenges exist everywhere because low-cost aviation has been present in almost every major market in Asia. VietJet seems to want to adopt joint venture strategy similar to that of some of Southeast Asia's leading Low-Cost Airline groups - AirAsia and Lion.
However, in fact, the low-cost aviation industry in Asia has become extremely crowded and extremely competitive. The time when Vietjet entered Vietnam market was perfect but it was too late to set foot in the party in other countries.
Brands and distribution systems are still weak in the international market There are many opportunities in the market but it seems that the inbound market (tourists to Vietnam) is much larger than the outbound market (Vietnamese tourists travel abroad), largely due to the limitations of Vietnam passport in the world (according to Passport index 2019, Vietnam passport ranked 73/92).
So far, VietJet has relied heavily on charter flights to serve the inbound market, especially China. Charter flights are extremely attractive VietJet will not need distribution agents and almost no risk. However, Vietjet will begin to face more risks when expanding scheduled flights in markets with limited traffic.
Some foreign airlines already have brand advantages in the domestic market that are planning to expand in Vietnam (Air Asia ...)
Overloaded and delayed flight
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Thanks to cheap price policy, Vietjet Air also helps many Vietnamese people access air services more easily. In return, Vietjet Air also encountered some
problems in service delivery, primarily the 'delay' of flights. The main reasons are : The plane back late: This situation usually occurs only in low-cost carriers with a small number of aircraft but a large number of passengers. The aircraft are always in a state of 100% capacity exploitation, so only one plane coming back late will bring a series of other flights delayed.
Weather: Next is the weather problem often mentioned by airlines, but this cause is not a major cause for the delay situation. Because very rarely weather conditions change enough to change a flight schedule. Most of the time only when the storm or heavy rain and wind of the aircraft cannot take off.
Yard conditions: Airports in Vietnam, especially Tan Son Nhat airport, are always overloaded. Even at peak hours, the airlines have to queue long to take off.
Recently the situation of overloaded aircraft began to appear. Aircraft hovering in the air for 15 - 30 minutes to be able to land.
Flight arrangements: The most dense flight schedule for low-cost carriers is one of the reasons for the delay in flight time.
Technical reasons: Airplanes of airlines are regularly maintained after each flight.
If during the maintenance process, the aircraft has detected an error that requires repair. At that time, the airline will have a shortage of planes leading to many flights being delayed.
OPPORTUNITIES
Vietnam is one of the most attractive aviation markets and the fastest growing markets in the world.
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The time that Vietjet entered the aviation market was extremely perfect because Vietnam's GDP growth rate has always been maintained at the highest level in the region (6-7%) since VietJet’s launch. According to statistics from Euromonitor, Vietnam's aviation market has the annual average passenger growth rate topping the region. In the period 2012-2017, the growth rate reached 28.9% compared to the average of 8.7% in the Asia-Pacific region and compared with regional countries such as Thailand (11.1% ) , Malaysia (8.1%). In the period from 2018 and the following years, Vietnam is still forecast to be one of the fastest growing aviation markets in the world, with a growth rate of approximately 20%, prospects reach 150 million passengers transported by 2035 (according to IATA).Vietnam aviation is a bright star about growth when the highest passenger growth rate in the region thanks to its potential for tourism and low rate of people flying.