Fast-growing VietJetAir nears huge Airbus order

Vietnam's first private airline, VietJetAir, said Wednesday it was close to finalising a $6.1 billion Airbus order as part of an ambitious expansion that has shaken up the communist country's once tightly controlled aviation industry.

Like many sectors of the economy, aviation was for years dominated by state-owned flag carrier Vietnam Airlines until the government eased restrictions, paving the way for low-cost carrier VietJetAir to launch in 2011.

Amid growing demand for air travel both domestically and regionally, competition in the industry has recently heated up with fleet expansions, new routes and a planned stock market flotation for Vietnam Airlines later this year.

The Airbus deal is expected to be signed at the Singapore Airshow next month, VietJetAir managing director Luu Duc Khanh told AFP.

VietJetAir and Airbus signed a letter of intent in September for the purchase of 62 A320 medium-haul aircraft worth $6.1 billion at catalogue prices, and for options for another 30.

The low-cost carrier, which currently serves 11 cities in Vietnam plus Bangkok, shot to prominence locally when it was fined for staging a racy in-flight bikini dance in 2012 to celebrate the launch of flights to Vietnam's popular tourist beach town of Nha Trang.

After two years of operation it has cornered 25 percent of the domestic market -- taking customers from Vietnam Airlines and low-cost carrier Jetstar, according to state media.

"Competition in the market has sharply increased as VietJetAir has expanded their fleet and local routes," Pham Viet Thanh, chairman of Vietnam Airlines' management board, told the state-run news website VietnamNet this week.

Vietnam Airlines still had 61.4 percent of the domestic market in 2013 -- down 7.3 percent year-on-year, the website said.

The government has recently announced plans for a slew of privatisations of state-owned companies, including Vietnam Airlines, but has not yet provided specific details or a clear timeline.

VietJetAir's Airbus order -- which will expand its fleet ten-fold -- is central to the expansion plans of the fast-growing airline, which wants to launch routes to Seoul in South Korea and Siem Reap in Cambodia among other regional destinations.

But the company is a late entrant to the low-cost segment in Southeast Asia, behind Malaysia's Air Asia, Lion Air of Indonesia, Singapore's Tiger Airways and Jetstar of Australia -- many of whom are also expanding their fleets.

"There's something of a torrent of activity at the moment," said Peter Harbison, executive chairman of consultancy firm CAPA-Centre for Aviation.

Fear of missing out on new markets in the rapidly-growing Asian aviation sector is "a large motivator with these very rapid expansions," he said.

Because demand is growing and many of the aircraft ordered will not be delivered immediately "there is potential to absorb these but there is very much a rush at the moment," Harbison said.

He said potential for growth in low-cost carriers in the region was "mind blowing.. But that doesn't mean everyone who buys a lot of aircraft is going to make money."

VietJetAir's letter of intent was for 14 of Airbus' current single-aisle A320 model and 42 of the new A320Neo due to enter into service in 2015, which promises airlines considerably better fuel efficiency.

Another six planes will be the longer A321 version, which can be configured with up to 220 seats.