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VietJet’s 1Q17 / Norwegian to start LGW-SIN

VietJet fleet at Tan Son Nhat International Airport copy

VietJet planes at Tan Son Nhat. Pic/VietJet

Discount carrier VietJet announced its earnings for 1Q17 on April 22, with revenue of around VND5,095 billion (USD225 million), or 44.2% higher than the same period in 2016. The airline said profit was up 6.8%, compared with 1Q16.

VietJet carried 3.7 million passengers in the first three months of 2017, an increase of almost 30% from 1Q16. It launched three new international routes in the same period, and said its load factor averaged 88%

The budget airline was listed end-February; at that time the company was valued at USD1.2 billion. It is majority owned by Madam Nguyen Thi Phuong Thao – she has direct and indirect shares of around 33%. Singapore sovereign wealth fund GIC holds a 5.4% stake.

It is understood VietJet is currently preparing for a bond issue of up to USD300 million and the funds will be used for aircraft payments. BNP and JP Morgan are thought to have been mandated to arrange the issuance.

Interestingly, VietJet’s finance director Yvonne Abdullah, a Malaysian who formerly worked for AirAsia X as CFO, is said to have left the company after barely four months on the job!

The carrier is growing very quickly. Last week it received shareholder approval to raise the cap on foreign ownership to 49% (from the current 30%). But that needs the approval of Vietnam’s premier – he will need to convince, among others, flag carrier Vietnam Airlines – that such a move is beneficial to the country and not the company. Not easy.

Norwegian to start LGW-SIN flights

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Coming to Singapore Changi soon. Norwegian’s B787-9. Pic/Boeing

Does anyone remember Air Madrid? Long before AirAsia X or Norwegian Air Shuttle there was this Spanish discount carrier owned by, among others, Spanish tycoon Herminio Gil, Spanish supermarket Eroski and a couple of hotel chains. The business model was simple: to capture the high-volume flights for millions of immigrants and tourists between South America and Spain.

Air Madrid was launched in May 2004. By end-2006 its operations were grounded. The airline failed for various reasons, including an inability to manage costs, running different types of aircraft, a diverse route network and expanding staff nearly 10-fold within two years.

We’ve said before that low-cost, long-haul isn’t impossible, but it’s just very, very tricky to succeed.

Norwegian announced it is starting flights from London Gatwick (LGW) to Singapore end-September this year using Boeing B787 Dreamliner planes. Read it here.

The move comes at a time when AirAsia X is also planning to relaunch flights to LGW from Kuala Lumpur. AirAsia X previously flew to Stansted but suspended the sector due to high operating costs.

Norwegian says it will initially fly 4x weekly to Singapore and then increase frequencies to 5x weekly in October 2017. Basic one-way fare is GBP179 while from Singapore the single fare is SGD199.90. There is also a premium option on the Dreamliner, starting at GBP1,339.

This will likely make the Gulf carriers (offering daily flights via the Gulf) take notice, for sure. What it means from September this year is that one can skip Dubai, Abu Dhabi and Doha and at a very competitive price to boot.

It won’t bother Singapore Airlines much because SIA and British Airways cater to a different segment.

It is a cause for concern to SIA subsidiary Scoot though… this summer it starts flying to Athens. It’s interesting to see if SIA (Scoot) might be tempted to collaborate with Norwegian. Norwegian is already flying direct from Scandinavia to Bangkok.

Indeed, AirAsia X might want to hook up with Norwegian, too. But Kuala Lumpur isn’t quite the same as Changi so we suspect there won’t be much interest from the Scandinavian airline.

To put things in perspective, there are over a million passengers flying between Singapore and London annually, and none of that is on a budget airline.

All things being equal, can Norwegian make low-cost, long-haul finally work?

No doubt Norwegian has been performing very well in recent years, expanding in Europe and across the Atlantic to the US and making healthy profits. All these were achieved in an environment of low fuel prices, which the B787 exploits exceptionally well.

There’s a good chance Norwegian will succeed, given Changi’s attractive location as a global air hub and the connections there provide a competitive edge.

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