Any economy that aims to develop further is in immediate need of adequate and modern facilities, notably transportation ones. They facilitate swift and efficient commodity and service circulation together with passenger transport. Thanks to its outstanding advantages of convenience and rapidity, the sector has initiated national and global economic development, specifically in tourism industries. The main beneficiaries of the airline development are namely aircraft manufacturing, air services, ground handling services, logistics etc. Its expansion also promotes supporting industries and new market exploitation. In addition, the aviation industry benefits socially from tourism, business, and trading promotion, which drives the whole economy by creating jobs, improving living standards, contributing to the national tax revenue, connecting countries and regions, etc. It also provides social assistance such as healthcare services or charities.

Prior to the Covid-19 pandemic, the world’s aviation industry witnessed substantial growth. In 2019, 38.3 million flights took off across the globe; the annual passenger number totaled around 4.3 billion with the freight volume reaching more than 58 million tons. Moreover, the world’s commercial fleet had an increase of 1,234 aircraft and carriers, producing the total profit of USD 45 billion. Overall, the international aviation industry created 65.6 million jobs including 10.2 and more than 55 million direct and indirect ones respectively. Aviation activities had an impact on USD 2.7 trillion-cost economic activities which approximated 3.6% of the globe’s GDP. It also generated the emergence of new business models namely business-to-consumer (B2C) or e-commerce due to its comparative advantages of speed and package safety.

In 2018 alone, although the shipping volume constituted 1% only, air-transported commodities valued at USD 6,800 billion, accounting for 35% of the world’s total freight volume. This proves aviation dominance over other transport modes in terms of high-value shipment.

As the Covid-19 pandemic broke out, the world economy suffered extensive damage. It was the airline sector that was hit the first and the hardest by the pandemic. As an effort to contain the outbreak, countries closed their borders and suspended international flights. Domestically, mass gathering ban and social distancing also caused damage to the tourism and service industries, which resulted in airline stagnation while the industry was still burdened by aircraft parking and ground handling costs. International Civil Aviation Organization (ICAO) reported that international and domestic passenger traffic decreased by 1.38 billion and 1.32 billion in 2020, equivalent to 74% and 50% compared to that of 2019, and airline revenue loss totaled USD 250 billion and 120 billion, respectively.

Even though Covid-19 vaccines have been produced and distributed globally, it is highly unlikely that the pandemic will be eradicated shortly. Hence, the airline industry was still faced with daunting prospects in 2021. According to International Air Transport Association (IATA)’s 24 February 2021 report, the 2021 estimated worldwide passenger traffic accounts for only 33% of 2019 (51% in December 2020’s report), and the total airline loss is bound to reach 95 billion (nearly doubles the December 2020’s forecast). IATA also claimed that global passenger traffic will not return to pre-COVID-19 levels until 2024. ICAO is also pessimistic about the first half of 2021 with the forecasted 42-47% decrease in the number of seats, 44‐47% decline in world total passengers, and USD 156-181 billion total revenue loss in comparison with 2019. The year 2021 is supposed to be challenging for the airline industry, which can be worse than expected and even more devastating than 2020.

Though Viet Nam has been one of the most successful countries in the world at containing the Covid-19 pandemic, the Vietnamese airline industry is still adversely affected. International routes are locked down except for some relief flights bringing Vietnamese fellowmen home; consequently, Vietnamese carriers have majorly exploited domestic flights. Viet Nam has 6 carriers in total, including 3 belonging to VNA Group (namely Vietnam Airlines, Pacific Airlines, Vasco), Vietjet Air, Bamboo Airways, and Vietravel Airlines which newly joined at the end of 2020. The year 2020 was reported to witness a 40% growth by Bamboo Airways, while VNA Group and Vietjet Air declined sharply by 21% and 34% respectively in total passenger number. In terms of financial efficiency, only Vietnam Airlines and Vietjet issue audited consolidated financial statements which show a massive reduction in 2020 revenue and profit. Particularly, Vietnam Airlines suffered pre-tax VND 8,743 billion losses and VND 10,975 billion passenger transportation loss – a year-on-year increase of VND 10,989 billion. Its average domestic passenger revenue stood at VND 997,000 / passenger – a decrease of 34.5% compared with 2019. Vietjet Air incurred the loss of VND 1,780 billion (pre-tax), VND 4,311 billion passenger transportation loss – a rise of VND 3.896 billion compared to 2019. It collected VND 450,000 domestic passenger revenue on average – a fall of 34% in comparison with the previous year.

In addition to direct financial damage, Vietnamese carriers are faced with a number of additional problems as follows:

Regarding excess resources: the current total number of aircrafts owned by Vietnamese carriers is approximately 230, increasing by 24 aircrafts or 10% compared to 2019. The estimated total number of seats available in April 2021 was 137% as compared to the same period in 2019, while the total revenue estimate accounted for only 76% of 2019. The excessive aircraft was roughly 58, accounting for 26% of the total aircraft owned by all Vietnamese carriers. Accordingly, it causes fleet inefficiency, low productivity while carriers are burdened with landing fees. Besides, overloaded airports took passengers more time to travel, extended time was required for flights of the same route, and other ground handling expenses were roaring.

With respect to ticket fares, carriers compete with the others by slashing ticket fees. Until April 2021, an average ticket cost roughly 55% as compared to that at the same period of 2019. Reduction in ticket price might result from sale promotions launched by all carriers or excessive resources; however, too cheap tickets generate market distortion and imbalance between cost and sale price. In the context of carriers being financially pressured, the drastic reduction of prices causes severe revenue losses or even bankruptcy since their operating expenses cannot be compensated by their shrinking revenue. Consumers are likely to benefit from reduced pricing in the short term, yet they will be disadvantaged in the long term as carriers that have a monopoly on certain market segments have to push up their ticket fares as compensation.

Management in crisis and some challenges

Because of the industry’s important role, governments don’t want to see their airlines go bankrupt. Many have already stepped in to help aviation businesses amid the virus-induced travel slump. Until the end of 2020, governments fueled the airline industry with over USD 200 billion and promise to give away approximately USD 80 billion in a foreseeable future. In general, the relief measures can be categorized as follows:

Firstly, governments directly fund the airline industry to compensate such airline costs as paying loans with interest and staff salary or lessening takeoff and landing charges, etc.. Alternatively, governments buy convertible bonds and shares to invest more capital for business operation. This proves to be the quickest, most direct, and immediately effective way to ease the financial burden on airline businesses while their revenue is badly affected by the pandemic. For example, the Canadian federal government agreed to aid USD 5.9 billion for Air Canada, including USD 4 billion in loans, a USD 500 million investment in Air Canada stock, and a separate USD 1.4 billion loan to help facilitate customer refunds. Until February 2021, the UK government funded its airline industry USD 10 billion; specifically, USD 2 billion to EasyJet, USD 2.8 billion to British Airways, and USD 1.7 billion to wage support schemes. In March 2020, the Singaporean government, with the support of Temasek, promised to provide Singapore Airlines with a USD 13.5 billion aid package, raised capital by issuing shares to existing shareholders, convertible bonds, and bridging loans⁽²⁾.

Secondly, many governments have relaxed their policies together with direct financial support to sustain airline operations. Relaxed policies may aim at taxes, costs, regulations on exploitations as well as ticket fares. Some typical cases can be noted as follows: China implemented tax exemption on importing aviation equipment or reduced domestic fuel prices⁽³⁾. The Airports of Thailand issued extended payment deadlines for taxes, fees, rentals, etc for COVID-19 affected airlines at 6 airports. Besides, India imposed a control policy on ceiling and floor prices to prevent carriers from pushing up ticket fares and to ensure customers’ interests. Indian domestic fares are divided into 7 groups that are dependent on flight times (the floor price constitutes 33% - 35% of the ceiling price) and the principle that 40% of the total selling seats must be at the average of the ceiling and floor price⁽⁵⁾.

Thirdly, several solutions have been suggested to improve the operational efficiency within aviation enterprises. Not only causing significant revenue losses to many world airlines, but the COVID-19 pandemic also exposed weaknesses in their operations. This is a good opportunity for countries to restructure their national airlines towards modernity as well as to improve financial capacity and business performance. Restructuring policies might include bankruptcy protection for reorganization like the case of Aero Mexico that applied for bankruptcy protection in the United States to restructure its finances⁽⁶⁾; or conducting mergers and acquisitions such as Korean Air’s decision to acquire Asiana Airlines with financial assistance from the State Bank to reduce head-to-head competition when travel demand declines⁽⁷⁾.

In general, many countries have demonstrated both state management in the aviation industry through policies to provide equal support for all airlines and retain the ownership of state capital at national airlines through specific support packages. During this health crisis, states clearly show their role in ensuring the existence of the airline industry and its customers’ interests, creating a premise for the aviation industry to recover in the future. As the economy returns to pre-pandemic normalcy, the aviation industry will play a particularly important part in casting its pervasive economic benefits to such industries as trade, service, and especially tourism.

It can be seen that governments play a significant role in managing, supervising, operating the aviation industry, and retaining their ownership of flag carriers. They also set the legal corridor and implement policies to guarantee smooth and effective market operations. The significance of state management in the aviation industry is demonstrated as follows: 1- Setting aviation safety standards; 2- Focusing on infrastructure construction projects such as stations, runways, air traffic control facilities, etc; 3- Issuing consumer protection policies such as taxes, fees, health, insurance, and other issues when traveling by air; 4- Ensuring aviation security and safety, as well as airspace sovereignty; 5- Guaranteeing healthy competition among aviation enterprises while operating; 6- Monitoring the social and environmental impacts of the aviation industry; 7- Formulating a strategy for cooperation, development and effective use of airspace with other countries.

During the recent crisis of the aviation industry, the Vietnamese government has provided timely support for aviation enterprises to survive this widespread hardship. As financial and operational difficulties persist to haunt the aviation industry, the government is obliged to make timely and adequate decisions to support and prepare for the post-pandemic economic recovery. For more effective and stronger state management in the aviation sector during the COVID-19 crisis, it is worth considering the following solutions:

Firstly, reconsidering aircraft purchases under the ongoing COVID-19 pandemic, befitting to the airline operating capability, infrastructure systems, airports, stations, warehouses, ground services. Besides, issuing the ceiling and floor prices in alignment with the market’s supply-demand principle as well as airline interests. In addition, it is necessary to adopt measures to balance airfares with those of other modes of transport.

Secondly, investigating and clarifying whether carriers’ competitively reducing ticket fares is an act of devaluation. Clause 6, Article 45 of the 2018 Competition Law stipulates: “It is forbidden to sell goods or provide services below the full cost, leading to or likely to lead to the exclusion of other enterprises trading in the same type of goods or services.” If unhealthy competition takes place, it is essential that strict sanctions be imposed, especially when the entire aviation industry is required to be united and mutually supportive during such an immense health crisis.

Thirdly, exploring the appropriate support mechanism, strengthening financial capacity through relaxation policies of taxes, fees, preferential credits, and other operating costs.

Fourthly, further clarifying the role of the state capital ownership in the flag carrier Vietnam Airlines in the short term; in addition, implementing strategic solutions to improve competitiveness and performance in the medium and long term. Evaluating the effectiveness of the VND 12,000 billion support package in the next coming months. Also, it is suggested to consider an additional support package to ensure state capital safety if the pandemic prolongs. Reviewing the financial regulations for Vietnam Airlines and other state-owned enterprises  in such a way that they are more flexibly aligning with the market pace and mechanism. At the same time, considering a plan to renovate the operation regulations and apparatus of the Committee for Management of State Capital at Enterprises (CMSC), specifying the 5-year contribution of post-tax profits to the state budget in compliance with the Law on State Budget, stimulating investment based on market demand, encouraging initiatives for manufacturing and business activities. Researching and considering plans of capital growth for Vietnam Airlines to expand, stimulating investment in science and technology, and improving the service quality. Accordingly, soon Vietnam Airlines will be a 5-Star airline which is an iconic symbol at both domestic and regional levels and presents the positive image of Viet Nam and its people to the world.

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(1) “Aviation has seen £7.2bn in UK government aid, says Shapps”, https://travelweekly.co.uk/news/air/aviation-has-seen-7-2bn-in-uk-government-aid-says-shapps

(2) “Singapore Airlines obtains $13 billion rescue package amid coronavirus shock”, https://www.reuters.com/article/uk-health-coronavirus-singapore-air-tema-idUKKBN21E06M

(3) “Lufthansa Technik Shenzhen: China introduces import tax exemptions on certain aviation equipment”, https://centreforaviation.com/news/lufthansa-technik-shenzhen-china-introduces-import-tax-exemptions-on-certain-aviation-equipment-1062179

(4) IATA Covid Government Relief Measure

(5) “Domestic flight ticket rates set to rise as Centre relaxes cap on price bands”, https://www.hindustantimes.com/india-news/domestic-flight-ticket-rates-set-to-rise-as-centre-relaxes-cap-on-price-bands-101613049288872.html

(6) “Aeromexico concludes two union negotiations in bankruptcy proceedings”, https://www.reuters.com/article/us-mexico-aeromexico-idUSKBN29325T

(7) “Expectations, Concerns about Korean Air’s Takeover of Asiana”, https://world.kbs.co.kr/service/contents_view.htm?lang=e&menu_cate=business&id=&board_seq=394521

This article was published in the Communist Review No. 968 (June 2021)