New Airline Set to Join Vietnam's Congested Skies

(Bloomberg) -- Vietnam's skies are about to get more crowded.

With state-owned Vietnam Airlines JSC and budget carrier VietJet Aviation JSC serving one of the world's busiest routes, property developer FLC Group JSC wants a piece of the action with a new airline, operating 37 routes in the country after its inaugural flight in October.

Called Bamboo Airways, the new airline still needs a government aviation license before operating and is seeking to capitalize on the nation's growing middle class and rapidly expanding tourism industry.

The International Air Transport Association forecasts Vietnam will be among the world's top five fastest-growing air travel markets in the next 20 years. The route between Hanoi and Ho Chi Minh City is already the world's sixth-busiest in terms of passenger numbers last year, according to IATA. The aviation industry handled 23.6 million passengers during the first half of the year, a 15 percent increase from the same period last year, according to Hanoi's General Statistics Office.

“With a good investment, well-prepared staff and new aircraft, we will become a giant right after we launch the airline,” Chairman Trinh Van Quyet said in an interview in his Hanoi office. The Civil Aviation Authority of Vietnam said the company has met “sufficient conditions” required to be able to fly in October and the flight license is forthcoming, he added.

Shares of FLC surged as much as 2.5 percent in Wednesday trading while the benchmark VN Index was little changed. Stock rose 0.9 percent as of 10:05 a.m. local time, poised for highest level since January.

Bamboo Airways' proposal is being reviewed, according to a transport ministry official. Still, the startup airline may struggle to crack Vietnam's aviation market, which also includes Vietnam Airlines's budget carrier unit and joint venture with Jetstar Pacific.

“Anybody coming into the market now is late,” said Brendan Sobie, a Singapore-based analyst at CAPA Centre for Aviation. “You have a domestic market becoming saturated. The international market will probably slow down in a couple of years.”

Vietnam's annual domestic seat capacity growth has slowed to single digits in the past 18 months after posting increases well above 20 percent annually the four prior years, according to Sobie. International seat capacity growth is accelerating, reaching about 20 percent a year in the past three years, he said.

Quyet said Vietnam's growing middle class and the government's efforts to make tourism a major industry will be enough to create room for the new carrier to succeed.

Bamboo Airways will initially use 20 leased narrow-body and widebody aircraft, he added. Parent FLC agreed to buy 24 Airbus SE A321neo planes worth $3.2 billion at list price for Bamboo Airways. In June, it signed a commitment for 20 Boeing Co. twin-aisle 787-9 Dreamliners with a list price of $5.6 billion. Sixty percent of the capital needed to buy the aircraft will be funded by financial organizations, Quyet said, adding that the funds were already arranged. The company expects full delivery of all aircraft by 2022.

The airline, which has registered capital of 1.3 trillion dong ($56 million), is planning 50 international routes in 2019 to countries including Russia, Germany, France, England, Japan and China, the chairman said.

--With assistance from Harry Suhartono.

To contact the reporter on this story: Nguyen Kieu Giang in Hanoi at giang1@bloomberg.net

To contact the editors responsible for this story: Linus Chua at lchua@bloomberg.net, John Boudreau

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