The research method of this thesis is qualitative analysis. After we have an
overview of the low-cost aviation industry in the world, Southeast Asia, especially Vietnam based on the theoretical contents presented in chapter one and chapter two of the study. Next is to use SWOT & 4P analysis mentioned in chapter 2 to analyze Vietjet's business situation, the results that Vietjet has achieved, analyze internal &
external factors directly or indirectly cause affect business performance, reputation, growth or namely SWOT matrix analysis including strengths, weaknesses,
opportunities, challenges and then propose effective strategies for businesses.
Followed by 4P analysis, we will study how Vietjet implements Marketing
strategies for products, prices, locations and promotions for domestic and foreign markets. All data will be collected from Vietjet's official website, Statistical portal, Wikipedia, Financial reports, Business reports from reputable websites, world aviation data center, evaluation of aviation experts, CEO speeches, books,
newspapers, magazines ... Finally, based on the results of qualitative analysis, we will draw conclusions about marketing strategies for the industry. Low-cost aviation and some useful recommendations bring good results for Vietjet's
development in the future. Besides, this thesis will point out the limitations in the research process and future proposals
33
Fingure 3.1 Research Framework 3.2 Research Framework
This study focuses on Marketing strategy for low cost airline industry based on a case of Vietjet Air in Vietnam. The overall research model is illustrated in fingure 3.1. After 6 years of participation in the airline market, Vietjet has achieved an amazing results because of the right choice of business model , seize opportunities at the right time, have a careful preparation, financial potential , strong relationship and business environment in Vietnam suitable for development of LCC: Vietnam is an attractive market thanks to its high growth rate in Asia Pacific region. The proportion of people flying is still low compared to the region. High tourism growth in the region and the most important thing is Vietjet's bold marketing strategy that has brought a great result for this low-cost airline.
Marketing Strategy for Vietjet Air
Qualitative Analysis: SWOT & 4P analysis
Recommendations for the case of Vietjet’s growth from LCC industry
Case of Vietjet Air in Vietnam
34
Chapter Four: Major Findings
4.1 Brief Introduction of Vietjet
VietJet Aviation Joint Stock Company ( trading name as VietJet Air or Vietjet) is an international low-cost airline from Vietnam. It was the first privately low-cost airline in Vietnam being granted its initial approval to operate by the Vietnamese Minister of Finance in November 2007. Due to fluctuations that caused gasoline and oil prices to rise therefore it was not until December 2011,Vietjet officially launch into airline market by the first flight from Tan Son Nhat Airport to Noi Bai Airport and made a big splash early on with ads featuring bikini-clad flight
attendants .
VietJet was established from 3 main shareholders of T&C Group, Sovico
Holdings and Ho Chi Minh City Housing Development Commercial Joint Stock Bank (HD Bank), with an initial charter capital of VND 600 billion (equivalent to 37.5 million USD at the time of capital contribution) . Vietjet is an airline to operate under the new-age carrier model , cost-effective & flexible and offers a wide range of services for customers to choose from. Not only air transport, Vietjet also provides services through advanced e-commerce technology
applications. Vietjet is an official IATA member with IOSA'scertificate in 2016 (IATA Operational Safety Audit). Culture of safety is a significant integral part of Vietjet corporate culture. This will be grasped thoroughly by every staff at Vietjet.
Currently, Vietjet is exploiting 66 aircrafts A320 and A321 , carrying out more than 385 flights a day and transporting more than 65 million passengers with 105 routes covering all destinations in Vietnam and international routes to Japan, Hong Kong, Singapore, Korea, Taiwan, China, Thailand, Myanmar, Malaysia, Cambodia... The company plans to develop a wide-spread network in the
Asia-35
Pacific region continue to expand routes in the region and has signed modern, modern generation aircraft purchase contracts with reputable aircraft
manufacturers in the world.(Vietjet’s annual report 2018)
Fingure 4.1: Vietjet’s flight network 2018
At present, Vietjet is the largest domestic airline with 45% market share in Vietnam , the fastest growing aviation market in Asia Pacific. Vietjet also had a spectacular development along with Vietnam stock market: Vietjet stock (VJC stock code) was officially listed on Ho Chi Minh City Stock Exchange (HSX) in February 2017 and soon included in the VN30 list from January 22, 2018.
36
Fingure 4.2 :Vietnam domestic market share %
For 5 years of taking off and serving customers, Vietjet has been honored with 32 domestic awards and 9 significant international awards such as :
Vietjet have been ranked 22nd in the top 50 global best airlines in financial activities and health in 2018 voted by Air Finance Magazine - one of the world's leading aviation financial magazines .
Vietjet also has been awarded the world's highest ranking for safety with 7-stars from the world's only safety and product rating agency AirlineRating ;
Being awarded the Third-Grade Labor Order of State President for outstanding achievements in charity and humanitarian work and contributions to the
country's development.
Vietjet won the Top Airlines by Absolute Passenger Growth in Southeast Asia at Changi Airline Awards 2018;
Top 10 Sustainable Development Businesses as recognized by Vietnam
Economic Times’ Editorial Board and readers; Top 100 Best Places to Work in Vietnam voted by Anphabe and Nielsen ;
37
Being honored as one of the Vietnam's 50 best listed companies in 2018 by Forbes.
Being awarded "Best Ultra Low Cost Airline 2018 " for two consecutive years.
Honored as “Pioneering Airline” at The Guide Awards 2018.
Being honored with Asia's Best Flight Attendant Wardrobe at NOW Travel Asia Magazine awards ceremony in Chengdu City (China).
Honored as “The best customers’s choice airline award” at award ceremony of Cool Product Awards 2018…
Furthermore, Vietjet Air under the leadership of Ms Nguyen Thi Phuong Thao:
Vietnam's first self-made woman billionaire & the richest female billionaire in Southeast Asia ($ 2.2 B) , has become Southeast Asia's second largest airline, surpassing AirAsia , only behind Singapore airlines (US 3.6B) in the market capitalization . Vietjet Air's market capitalization is currently at VND 64,492 billion (USD 3B). Madam Thao also said that: "I have always aimed big and done big deals. I have never done anything on a small scale. When people were trading one container [of goods], I was already trading hundreds of containers". (Forbes).
General Director & CEO of Vietjet Air: Nguyen Thi Phuong Thao was also honored in the Top 100 most powerful women in 3 consecutive years (Forbes);
honored by Bloomberg as one of 50 global leaders in 2018 and honored as the most successful businesswoman in both Vietnam and the ASEAN region at the award ceremony of the ASEAN Business Award 2018.
Vision: To become a multi-national aviation group with a route network covering the entire region and the world, providing and developing not only aviation services but also consumption products on the e-commerce platform and being a favourite and trusted brand name (Website of VJ)
38
Mission: To operate and develop domestic, regional and international route network. To bring a breakthrough in aviation services. To make aviation services to become popular means of transport in Vietnam and in the world. To bring joyfulness, customer satisfaction by providing luxurious and exceeding expectation services with friendly smiles.
Core value: Safety - Happiness – Affordable Price - Punctuality
Corporate Culture: Awareness of safety – Integrity – Differentiation, full of inspiration – Diligence, Resourcefulness – Joyfulness, Strength and Excitement Business sector: Vietjet's business activities focus on 5 main groups, including:
Education and Training : For aircraft drivers, Technicians & Other
Building: Real estate, Exploiting, Leasing…
Direct support activities/others: Ground services , Maintenances , technical supports, Fuels , Accessaries
Business: Food Service, Machinery / aircraft: Sell, Broker, Auction; Ticket distributor, Advertisement, Retail, Restaurant
Passenger transport airline: Promote / organize tourism, Road passenger transport/ others, Transportation of goods
Vietjet’s Business Model: Based on low-cost airline model with specific elements such as single-point flight, focusing on short-haul flights with high flight
frequencies, focusing on cost control, the main web-based distribution channel Consantly innovation to create make a difference in the quality of products &
services offer to customers, Vietjet has succeeded in building a new generation airline model: low cost but with superior service quality that meets industry 4.0 and serves the diverse needs of different customers.
39
Trading name VietJet Air (VJ or VJC)
Founded November 2007; 11 years ago Commenced operations 25 December 2011
Hubs Cat Bi International Airport Da Nang International Airport Noi Bai International Airport
Tan Son Nhat International Airport Fleet size 66 (orders :314)
Destinations 105
Company slogan Vietnamese: "Bay là thích ngay!"
English : "Enjoy Flying!
Parent company Sovico Holdings, HDbank Headquarters Ba Đình, Hanoi, Vietnam President and CEO of
Vietjet
Nguyen Thi Phuong Thao
Employees 2000
Website www.vietjetair.com
Table 4.3: Vietjet Air
Although facing many difficulties but as a driving force for the aviation industry, Vietjet has achieved many impressive results in 2018. Last year, Vietjet recorded a consolidated revenue of VND 53,577 billion, consolidated pre-tax profit VND 5,816 billion; proudly transports 23.06 million passengers, operates 66 aircraft with 105 domestic and international routes, carries out a total of 118,923 safe flights.
This is the results of the effort and passion of whole Vietjet staffs. After 8 years, Vietjet has really made a revolution in the airline industry with a lot of changes.
40
That change not only brings sustainable value to investors and partners but also practical benefits for people and communities; positive impact on managers; create a new environment with new elements, new market problems that other airlines are adapting to. Vietjet's success story is concerned by the aviation industry and shared in regional forums and made a strong impression on international friends…
Fingure 4.4 : Vietjet's business results 4.3 SWOT & 4P Analysis
SWOT Analysis
Proud to be a new generation airline with modern fleet, Vietjet has contributed significantly to serve the travel needs of tens of millions of passengers and become a favorite airline in the domestic and regional. VietJet emerged as one of the
41
leading low cost airline in Vietnam and has quickly built up a significant position in one of the fastest growing aviation in Southeast Asia region . VietJet was launched operation in Vietnam at the end of 2011 and has also been consistently profitable since 2013. Vietjet has already become Vietnam's largest domestic airline with 45% market share in 2018 . However, a large proportion of VietJet's profits have been generated from sale leasebacks (SLB). VietJet has also enjoyed low maintenance costs as a result of operating a new fleet. VietJet could face higher aircraft rental & maintenance costs in future, the entry of new firms
(AirAsia, Bamboo Airways... ) and will also have to overcome stiff competition as it starts to focus more on expanding in the international market.
Here, I will proceed to do a SWOT analysis based on Vietjet’s strengths, weaknesses, opportunities and threats.
STRENGTHS
VietJet has quickly captured significant domestic market share over the years Vietjet Air exploited its first commercial flight at the end of 2011. In 2012, Vietjet's market share was only 8% and Vietnam Airlines was 70%. However, after 6 years since the first commercial flight, Vietjet Air has risen to become the largest domestic market share in Vietnam (45% in 2018), surpassing Vietnam Airlines and Jetstar Pacific. In 2018, the new generation airline Vietjet continues a year of high and sustainable growth. Not only exceeding Vietnam Airlines in terms of market share, Vietjet Air also rose to financial ratios. Vietjet's total
number of passengers reached more than 23 million, leading the domestic market, the number of international flights increased to 66, accounting for nearly two-thirds of the airline's total routes. The results of business activities in 2018 audited with revenue of VND 53,577 billion and profit before tax of VND 5,816
billion.Vietjet leads the domestic market in terms of the number of passengers
42
transporting and developing the international flight network, implementing 118,923 flights with 105 routes including 66 international routes, covering destinations in Vietnam and internationally. to Japan, Hong Kong, Singapore, South Korea, Taiwan, Thailand, Myanmar, Malaysia, Cambodia, China ..., Vietjet aircraft also operates at the Dubai, Doha airports.
Fingure 4.5 : Domestic market share of airlines in Vietnam
Vietjet has a strong financial potential , able to bear financial and legal risks, always ready to deal with the worst situations.
In aviation business, losses and profits are quite close. In the world, in the current difficult conditions, there are still many airlines that are not profitable and also many loss companies. With the characteristics of aviation business model,
investment costs are extremely expensive, the first thing that investors need to do is to increase capital. This is absolutely correct in the case of VietJet because it have been preparation of financial resources for the 5-year plan before Vietjet launched the market with the potential shareholders such as T&C Group, Sovico
43
Holdings and Ho Chi Minh City Housing Development Commercial Joint Stock Bank. This also explains partly why Vietjet Air survived in the crisis period of 2008-2011, while some other aviation enterprises such as Indochina Airlines and Air Mekong have to close. Its goal is the first years to focus on quality of service, ensuring stable and punctual flight schedules. Vietjet has clearly defined that in the first years it is not possible to make a profit but there are plans to gradually balance revenue and costs and proceed to make profits in the following years.Moreover, in 2017 Vietjet has successfully IPO and it has attracted a large capital from abroad.
VietJetAir has effectively used both strict management of cash flow, while ensuring service quality. Accordingly, the ticket proceeds are obtained from 3-6, even 9 months before departure, while most of the expenses are fuel, aircraft rental, ground service, takeoff. All of them are paid slowly for 1 month or more, thus helping the company gradually balance the revenues and expenditures.
The aircraft is mobilized at high efficiency and good fill rate.
Fingure 4.6: Number of average hours of operation per day (Bloomberg)
44
Vietjet Air maintains a high occupancy rate compared to the industry average (~88%), in addition to the aircraft being mobilized with the highest utilization rate among Asia Pacific LCC firms with flight hours .The daily average is 14.06 hours, thereby reducing the average fixed costs per flight.
Vietjet takes pride in owning a new, modern, environmentally friendly fleet and operating cost per unit of product in the lowest of Asia as well as the world.
As of December 31, 2018, Vietjet has operated and exploited 64 new generation aircrafts belonging to the Airbus family, including 23 A320 aircraft, 34 A321 aircraft and 7 NEO A321 aircraft, the average age of the fleet is 2.82 years. A320 aircraft with a configuration of 180 seats and A321 with a large passenger
compartment with a capacity of 230 passengers are all types of high-reliability aircraft with low operating costs and many advantages in fuel economy ,
environmental protection. In 2017, Vietjet became the first airline in Southeast Asia to operate the latest generation of Airbus aircraft is the NEO A321 which will reduce fuel consumption by at least 16% in the beginning, reduce noise by up to 75% and emissions to the environment by 50% as announced by the manufacturer.
Vietjet Air is one of the cheapest airlines in Asia and the world. In the first 6 months of 2018, the cost per seat kilometer (CSKA) was only 4 cents (VND 909) increased by 5.3% compared to 2017 due to the increase in fuel prices , if
eliminating fuel costs is lower (2.2 cents). This is particularly beneficial in Vietnam - the market is sensitive to prices and low profit margins. Worldwide, there are only a few low-cost carriers, with low CSKA like Vietjet Air: AirAsia, Wizz Air, Ryanair and Cebu Pacific. Low cost has allowed Vietjet to establish profit at a very early stage. Vietjet has been profitable since 2013 and profit has increased steadily since then.
45
Fingure 4.7 : CASK and CASK ex-fuel (2017 & 2018)
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
46
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
47
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
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